AAPSI For CY 2016 - CPD COPY FOR GCG COMPLIANCE PDF

AGENCY ACTION PLAN and STATUS of IMPLEMENTATION (AAPSI)
Audit Observations and Recommendations

For Calendar Year 2016
As of 15 August 2017
Agency Action Plan Reasons for

Action
Target Partial/Delay/Non-
Status of Taken/Actions
Ref Audit Observation Audit Recommendation Person/Dept. Implementation implementation, if
Action Plan Implementation to be Taken
Responsible Date applicable
From To
A. Financial Audit – Corporate Office
Presentation of Appraisal Capital Stock

1. The presentation of the year-end balance of Appraisal Capital Stock in the Financial Statement amounting to P28.428 billion was not in accordance with the Philippine
Public Sector Accounting Standards (PPSAS) on Property, Plant and Equipment (PPE).
1.1. Analysis of the account In view of the series of Management shall Finance and Aug- Dec- Ongoing
Appraisal Capital Stock disclosed adjustments made to the comply with the Property 17 17
that the recognition, measurement Appraisal Capital Stock audit Mgmt.
and presentation of accounts are and the first time adoption recommendations Department
of PPSAS by MWSS which
based on the Philippine Financial employs the cost model for
Reporting System (PFRS) since all types of PPE and
MWSS accounts were migrated to Investment Property, we
e-NGAS in CY 2007. The Appraisal recommended that
Capital Stock account is used to Management:
record changes in the carrying
a. Make the
amount of items of PPE as a result
necessary reversal of
of revaluation. As used in PAS 16, the balance of Appraisal
Appraisal Capital Stock is the same Capital Stock and the
as Revaluation Surplus. corresponding PPE
accounts.
1.2. In CY 2015 Annual Audit
Report (AAR), it was reported that b. Make the
necessary correcting
the year-end balance of the
and reversal entries on
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Appraisal Capital Stock and the the erroneous
carrying value of PPE amounting realization of Appraisal
P36.383 billion and P46.251 billion, Capital Stock amounting
to P7,504,501,148.14.
respectively, were found unreliable
due to the (a) non-conduct of Dr - Retained Earnings
regular revaluation/appraisal of Cr – Land
PPE, (b) non-realization of
revaluation surplus to Retained
Earnings for disposed PPE and
depreciable PPE still in use after
revaluation and (c) erroneous
recording of appraisal value for the
idle lands which should be credited
to Retained Earnings instead of
Appraisal Capital Stock.
1.3. As of December 31, 2016,

Appraisal Capital Stock account
showed an ending balance of
P28.428 billion as shown below.
This amount should have been

realized upon retirement or
depreciation of the assets had the
Management complied with
Paragraph 41 of PAS 161.
1.4. However, it was observed
1
“The revaluation surplus included in equity in respect of an item of property, plant and equipment may be transferred directly to retained earnings when the asset is derecognized. This may involve transferring the whole of the surplus when the asset is
retired or dispose of. However, some of the surplus may be transferred as the asset is used by an entity. In such a case, the amount of the surplus transferred would be the difference between depreciation based on the revalued carrying amount of the
asset and depreciation based on the asset’s original cost. Transfers from revaluation surplus to retained earnings are not made through profit or loss.
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that except for land, all other sub-
account balances of Appraisal
Capital Stock have been non-
moving from the time MWSS’
accounts were migrated to e-NGAS.
Hence, no piecemeal realization of
revaluation surplus has been
transferred to Retained Earnings for
assets still in use after revaluation,
nor when MWSS’ revalued assets
are disposed of.
1.5. Further, no changes have

been made to the account Appraisal
Capital Stock to record realization of
revaluation surplus considering that
MWSS had disposed some of its
unserviceable assets in previous
years and there was no record
showing the specific assets where
the revaluation surplus was
recorded in the books.
1.6. In CY 2014, various

adjustments were made to the
account Appraisal Capital Stock with
a total net credit amount of P7.955
billion. These were posted to adopt
the appraised value of the retained
assets of MWSS as of 31 December
2010 based on the Asset Condition
Report as of CY 2010, submitted by
the two concessionaires as verified
by private consultants engaged by
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the MWSS Regulatory Office in CY
2013.
All of these adjustments except for

nine journal entries pertained to the
appraisal of various land accounts
recorded in the books as PPE –
Land (201). The nine journal entries
adjusting the Appraisal Capital
Stock with a total net credit amount
of P450.484 million pertained to the
revaluation of idle lands accounted
for as investment property and
recorded in the books as Other
Assets (290).
1.7. To comply with the prior

year’s audit recommendations,
adjusting journal entries were
posted in CY 2016 to realize the
revaluation surplus to Retained
Earnings:
However, further verification

revealed that adjusting entries b to d
with a net amount totaling
P7,504,501,148.14 pertained to
various Land accounts still with
carrying value in the books, not yet
dispose of. Management should
have recognized the realization of
the Appraisal Capital Stock
pertaining to Land only upon
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disposal of the asset.
1.8. Meanwhile, under COA

Circular No. 2015-003 dated 16 April
2015, MWSS is classified as a Non-
Government Business Entity (Non-
GBE) and under COA Resolution
No. 2015-040 dated 1 December
2015, the adoption of the PPSAS by
Non-GBEs is until 1
January 2016.
1.9. MWSS, being a non-GBE,

the PAGs2 ruling shall apply.
Other Receivables
2. The reported year-end balance of the account Other Receivables of P5.623 billion was unreliable due to:
a. Recognition of the disputed claims by Concessionaire MWSI consisting of borrowing cost and penalty on delayed remittance of concession fee of P4.048 billion
and P1.118 billion, respectively, or a total of P5.166 billion, not in accordance with PPSAS 19;
b. Inclusion of Guarantee Deposits with Concessionaires MWSI and MWCI of P64.798 million and P55.681 million, respectively, representing active customer’s
deposits withheld by Concessionaires from the collection of accounts receivable from water and sewer services of MWSS, contrary to the Conceptual
Framework for Financial Reporting as prescribed by PPSAS; and
c. Variance of P4.734 billion and P163.865 million between the book balances and the confirmed balances of the accounts with MWSI and MWCI.
2
Philippine Application Guidance (PAG) 2 of PPSAS 17 covering PPE states:
“Paragraph 42 provides that an entity shall choose either the cost model or the revaluation model as its accounting policy, and shall apply that policy to an entire class of property, plant, and equipment. For consistency and
uniformity, the cost model shall be adopted for all classes of PPE.”
PAG 2 of PPSAS 16 covering Investment property states:

“Paragraph 39 permits the entity to choose between the fair value model and the cost model as accounting policies applicable to its investment property. For consistency and uniformity, the cost model shall be adopted.”
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2.1 The account Other Receivables COA recommended that Management Finance Aug- Dec- Ongoing
showed a year-end balance of Management: commented that Department 17 18
P5,623,495,515.81 comprising of they will pursue
receivables from the a. Properly present collection of the
Concessionaires and other entities in the financial statement disputed claims on
to which MWSS has a claim. As the cost of borrowing borrowing cost, and
defined under COA Circular No. totaling P4.048 billion in shall disclose the
2015-010 dated 01 December accordance with PPSAS same in the Notes
2015, Other Receivables is used to 19 re: contingent assets to Financial
recognize amount due from debtors to which the realization or Statements. With
and other entities not falling under collection of the subject regard to the
any of the specific receivable claims is virtually disputed claim on
account. This account is credited uncertain, pending delayed remittance
for payment/liquidation of outcome of the local of concession fee,
receivables. arbitration proceedings; Management
informed that a
2.2. Audit of the account disclosed b. Submit an request for write-off
the following: updated report on the was already made
arbitration on the to this Commission.
2.2.1. Recognition of the disputed claims with
disputed claims by MWSI MWSI as reported in the
consisting of borrowing cost and AAPSI for CY 2015;
penalty on delayed remittance
of concession fee amounting to c. Account for and
P4.048 billion and P1.118 make necessary
billion, respectively, or a total of adjustments in the
P5.166 billion was not in account Other
accordance with PPSAS 19. Receivables,
The details are shown below: representing the
guarantee deposits of
a. The cost of borrowing as active customers which
disclosed in the Notes to the have been transferred to
Financial Statements, included the concessionaires;
principal, interest and finance
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charges such as bank d. Verify the
conversions, documentary discrepancies noted
stamps, cable charges and amounting to
penalties. The Notes also stated P10,052,992.85 between
that “MWSS is still pursuing the the year-end balance of
disputed claims on cost of guarantee deposits
borrowings from Maynilad receivable totaling
Water Co., Inc. relative to the P160,579,648.05 and
BNP Paribas loan. Should balance of guarantee
MWSS be able to collect deposits payable totaling
additional cost of borrowings, P170,632,640 and
the said amount will be used to ensure that the recorded
pay the loan with LBP/DBP guarantee deposits
Bonds Facility.” payable pertain only to
those claims other than
b. On matters regarding those of the active
penalty on delayed remittance customers which should
of concession fee, the Notes to be transferred to the
the Financial Statements concessionaires;
mentioned that “On December
19, 2007, the Rehabilitation e. Provide
Court issued an order, Special justification on the
Proceeding No. Q-03-071 recording of Guarantee
disallowing the penalty and the Deposits Payable only
Order was confirmed on during the MWSS
February 6, 2008. In that privatization; and
regard, MWSS requested the
Commission on Audit in a letter f. Reconcile the
dated February 13, 2012 for the other receivables
dropping from the books of the accounts with MWSI and
subject penalty based on the MWCI showing a
order of the rehabilitation court.” variance per confirmation
as against balance per
c. In the Agency Action Plan books totaling
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and Status of Implementation P4.734 billion and
(AAPSI) for CY 2015, P163.865 million,
Management informed that it respectively, and demand
sent a follow-up letter to the payment of the valid
COA on its request for write-off receivables.
of Other Receivable – MWSI-
Penalty on Delayed Remittance
of Concession Fee. It further
stated that arbitration regarding
cost of borrowing is on-going.
Taken into consideration the
result of arbitration which is
beyond the control of the entity,
the said claim can therefore be
considered contingent assets3.
2.2.2. Inclusion of
guarantee deposits with MWSI
and MWCI representing active
customer’s deposits withheld
from the collections of accounts
receivable from water and
sewer services of MWSS
amounting to P64.798 million
and P55.681 million,
respectively, was not in line with
3A contingent asset as defined under PPSAS 19 is “a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly
within the control of the entity. Contingent assets usually arise from unplanned or other unexpected events that give rise to the possibility of an inflow of economic benefits to the entity. An example is a claim that an entity is
pursuing through legal processes, where the outcome is uncertain.” (Emphasis ours).
Paragraph 39 of the same standard states that an entity shall not recognize a contingent asset. Further, paragraph 41 provides that “Contingent assets are not recognized in financial statements since this may result in the recognition
of income that may never be realized. However, when the realization of income is virtually certain, then the related asset is not a contingent asset and its recognition is appropriate.”
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the recognition of assets and
liabilities under Conceptual
Framework for Financial
Reporting as prescribed by
PPSAS.
a. Accounting records
showed the year-end balance of
Other Receivables -
Guarantee Deposits account
with Concessionaires amounts
to P160M
b. Guarantee deposits as
discussed in Notes to the
Financial Statements for CY
2016, “are customer deposits
prior to the privatization of
MWSS. The amounts were
withheld by the two
concessionaires from collection
of accounts receivable from
water and sewer services of
MWSS on the onset of
privatization where the two
concessionaires were
authorized to collect. xxx”
c. On 11 May 2011, the

MWSS Administrator requested
from the MWCI the refund of
guarantee deposits which was
deducted from the collections of
the MWSS customers
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receivables covering the period
August 1997, including the 2.91
per cent interest, with a grand
total of P9,901,983.00. In view
thereof, on 30 November 2011,
MWCI paid P6,626,987.00 as
evidenced by JEV-2011-11-
006275 thus, leaving an
unremitted balance of
P3,274,996.00.
d. Likewise, on 6 June 2014,

MWSS also requested the other
Concessionaire, MWSI, for the
refund of guarantee deposits of
P30,197,647.94. However, to
date, no refund/payment was
received by the System.
e. Further verification showed

that in the event that the
computation and assessment of
MWSS is accurate and
acceptable to the
Concessionaires, the balance of
guarantee deposits of active
costumers prior to privatization
should have been
P120,480,017.11.
f. Furthermore, the
aforementioned guarantee
deposits should not be
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recognized as receivables from
Concessionaires and at the
same time as payable
(guarantee deposits payable) to
customers since it is contrary to
the PPSAS conceptual
framework4.
Based on the foregoing, the

P40,099,630.94 claim for refund
should only be the amount to be
recognized in the books which
represents the deposits from
inactive customers,
unaccounted deposits and/or
those not within the service area
of the two Concessionaires.
g. In addition, a variance of
P10.052 million existed between
the year-end balance of
Guarantee Deposits Receivable
and the balance of Guarantee
Deposits Payable.
h. Also, the propriety of

recording the MWSS
customers guarantee deposits
deducted by the
Concessionaires from their
4 In recognizing asset/rights and liability/obligations, Conceptual Framework for Financial Reporting as prescribed by PPSAS, provides that:
“An asset is recognized in the balance sheet when it is probable that the future economic benefits will flow to the entity and the asset has a cost or value that can be measured reliably. [F 4.44] A liability is recognized in the balance
sheet when it is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation and the amount at which the settlement will take place can be measured reliably. [F 4.46]”
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remittance to the MWSS cannot
be ascertained due to:
i. Lack of details and

supporting documents
to determine the
accuracy of the
guarantee deposits
paid by the customers
prior to privatization of
its operation; and
ii. The proposed

accounting entry as
recommended by the
accounting firm hired
by the MWSS as
shown below, could
have resulted in a
double recognition of
payable.
Other Receivables-MWSI & MWCI

xxx
Guarantee Deposits Payable-For
Recon xx
2.2.3. Variance of
P4.734 billion and P163.865
million existed between the
book balances and the
confirmed balances of the
accounts with MWSI and MWCI,
thus posed doubt on the
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accuracy of the year-end
balances.
a. Other receivables from

MWSI with book balance of
P5,445,333,994.20 differed from
the confirmed balance of
P710,715,773.84, resulting in a
difference of
P4,734,618,220.36.
b. MWSI further disputed the

claims of MWSS on Inventories
Held in Trust account.
a. As regards MWCI, it
confirmed that there is no
outstanding payable to MWSS,
however the MWSS’ records
showed a book balance of
P163,865,610.28.
j.
Results of the Physical Inventory-taking of Property, Plant and Equipment
3. Reliability, existence and completeness of the PPE were doubtful due to the deficiencies noted on the report of the physical inventory-taking of the MWSS’ properties
as of December 31, 2016, to wit:
a. Non-reconciliation of records between the Finance Department and Property Management Department pertaining to the Office Building, Other Structures and
General and Administrative Equipment (GAE) on the Physical Inventory Report submitted and lack of information provided on the reconciliation report on the
Land and Land rights;
Various Office Buildings and Other Structures totaling P1.157 billion were not found/missing, dilapidated, abandoned and not-in-service/inactive, while various
Land and Land rights with total area of 1,909,542 sq. m. were classified as not-in-service;
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b. Various Land and Land Rights with area totaling 1,846,396 sq.m. were found during the inventory-taking but not recorded in the books;
c. Net variance of P3.280 billion was noted on the PPE book balance of Office Building, Other Structures and GAE as of December 31, 2016 as against the Physical
Inventory Report of PMD;
d. Various unserviceable GAE with total cost of P239.353 million returned to MWSS by the concessionaires in CYs 2006 to 2015 remained undisposed, contrary to
the Manual on Disposal of Government Property; and
e. Various retained assets with carrying amount of P96.043 million were reportedly used by the Concessionaires and Common Purpose Facilities (CPF).
3.1. This is a reiteration of previous year’s findings and recommendations.
3.2. COA audit was guided by Article IX-D of the Philippine Constitution, Presidential Decree (P.D.) No. 1445 - State Audit Code of the Philippines and COA Circular No. 80-124
re: Inventory of Fixed Assets of Government Owned and/or Controlled Corporations (GOCC):
3.2.1. Article IX-D states that one of the principal duties of the Commission on Audit is to examine, audit and settle all accounts pertaining to the revenue and receipts
of, and expenditures or uses of funds and property owned or held in trust by, or pertaining to, the government.
3.2.2. Section 44 of PD 1445 states that the auditor shall from time to time conduct a careful and thorough check and audit of all property or supplies of the agency to
which he is assigned.
3.2.3. COA Circular 80-124 dated January 18, 1980 was issued since the physical inventory-taking, being an indispensable procedure for checking the integrity of
property custodianship, has to be regularly enforced. It states the responsibility and accountability of the head of agency to exercise the ordinary diligence to
prevent the incurrence of loss of government property. It also includes the guidelines for Inventory-taking stating that the inventory report shall be properly
reconciled with the accounting and inventory records.
3.3. MWSS, as an asset-based agency, registers a large number of asset classes that range from small-value general administrative equipment to complex and high-value
government resources which include land and land rights, buildings and other structures and the largest among them are the service concession assets assigned to the
concessionaires by virtue of the Concession Agreement entered into with MWSI and MWCI.
3.4. MWSS’ PPE are broadly classified as follows:
a. Service Concession Assets – These include land and land rights, buildings and other structures.
 Assigned to Concessionaires;
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 Assigned to Common-Purpose Facilities (CPF); and
 MWSS-retained assets
b. General Administrative Equipment (GAE) – These include old GAEs prior to MWSS’ privatization; and GAEs acquired thru projects implemented by MWSS.
 Turned over Old GAEs to Concessionaires;
 Turned over Project GAEs to Concessionaires;
 MWSS-retained old GAEs; and
 MWSS-retained Project GAEs
In CY 2016 report on the physical COA recommended that Management shall Finance and Aug- Dec- Ongoing
inventory-taking, it was observed Management: comply with the Property 17 18
that there was no reconciliation audit Mgmt.
between the records of the Finance a. Prepare reconciliation recommendation. Department
and Property Management report of records of the
Departments for the Office Building, Finance and Property
Other Structures and GAE, thus, the Management Department
reliability of the balance reported in pertaining to the Office
the Agency books cannot be Building, Other Structures
ascertained. Only the report on Land and GAE in accordance
and Land rights has presented the with COA Circular No. 80-
reconciliation as required by the 124;
guidelines on physical inventory-
taking set under COA Circular No. b. Complete the data on
80-124. However, no specific sub- the reconciliation report for
ledger accounts were compared on the Land and Land Rights;
the reconciliation, thus, making it
difficult to ascertain the reliability of c. Establish, implement,
the reconciliation report. maintain and monitor
effective and efficient
Also, it was observed that out of the asset/property
various Office Buildings and Other management system to
Structures with total carrying amount ensure that government
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of P1.157 billion, 6.3 per cent or a properties are
total of P72.853 million of which safeguarded from
were not found/missing per deterioration and losses;
Management Inventory Report.
while 93.7 per cent or a total of d. Utilize the properties
P1.084 billion were abandoned, which were found not-in-
dilapidated, and not-in- service to generate benefit
service/inactive, thus, the existence to the agency;
of the PPE as reported in the books
cannot be ascertained. e. Account for all
properties found during
On the other hand, various Land the physical inventory-
and Land rights consisting of 57 lots taking but not recorded in
with total area of 1,909,542 sq.m. the books and prepare the
were classified as not-in-service, necessary adjustment or
thus, considered as idle lands. recognition, thus, ensure
completeness of recording
Furthermore, the report revealed of the PPE in the
that various Land and Land rights accounting books;
consisting of 71 lots with area
totaling 1,846,396 sq.m. as f. Reconcile the net
summarized below were found variance noted in the
during the physical inventory taking, balance of the PPE in the
but not recorded in the books. Thus, accounting books as
completeness of the PPE as against the PMD records;
reported in the books is doubtful. and
Total net variance of P3.280 billion g. Immediately conduct

was noted on the PPE balance of disposal of the
Office Building, Other Structures unserviceable properties
and GAE as of December 31, 2016 in accordance with the
as against the balance reported by Manual on Disposal of
PMD on the Physical Inventory Government Property, to
Report, thus, reliability of the PPE generate additional fund to
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cannot be ascertained. the agency and avoid
further deterioration and
Meanwhile, the variance on the diminishing market value.
Land and Land Rights, if any,
cannot be accounted since no
corresponding amount was
indicated in the report of the
physical inventory-taking.
Various unserviceable GAE

consisting of 1,283 items with total
cost of P239.353 million returned to
MWSS in CYs 2006 to 2015
remained included in the report of
the physical inventory-taking as of
December 31, 2016, and not
dispose of, contrary to the Manual5
on Disposal of Government Property
issued thru National Budget Circular
425 dated January 28, 1992.
During the audit of prior year’s

inventory taking, there were items of
retained assets presented in the
report but remarked as being used
by the concessionaires and CPF.
The report of inventory taking for CY
2016 showed 95 items of Office
Buildings and Other Structures with
5The Manual provides that the disposal proceedings should be immediately initiated to avoid further deterioration of the property and consequent depreciation in its value. Below is the summary of the unserviceable GAE as included in
the report.
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carrying amount of P96.043 million
were being used by the
concessionaire and common
purpose facility.
Not Valid Obligations included in Other Deferred Credits account
4. Of the year-end balance of the account Other Deferred Credits, the amount of P1.815 billion or 98.61 per cent was found not valid obligations since these are (a)
credits with no collections received totaling P1.719 billion, (b) credits with collections already earned totaling P94.964 million, and (c) misclassifications to the account
totaling P1.820 million.
4.1. This is a reiteration of prior COA recommends and Management Finance Aug- Sept- Ongoing
years’ audit observation with the Management analyze commented that Department 17 18
recommendation to analyze and review and review each of the they are awaiting
each of the subsidiary ledgers of the subsidiary ledgers of authority from the
Other Deferred Credits account to the Other Deferred
COA to drop from
ensure that only cash collections Credits account to
the books the
received in advance for services that ensure that only cash
are yet to be rendered are included in collections received in amount of P1.118
the account at the end of each advance are recognized billion pertaining to
accounting period; and thereafter, at the end of each deferred credits to
prepare the necessary adjustments. accounting period; and income penalty on
thereafter, prepare the delayed payment-
4.2. PPSAS 1 on the necessary adjusting concession fee-
Presentation of the Financial entries. MWSI.
Statements provides that liabilities
are present obligations of the entity
arising from past events, the
settlement of which is expected to
result in an outflow from the entity of
resources embodying economic
benefits or service potential.
4.3. Analysis of the account Other

Deferred Credits disclosed that it is the
accounting practice of the MWSS to
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credit this account in recognizing a
receivable or due from the
Concessionaires which is not in
accordance with PPSAS 1 that
liabilities are present obligations.
4.4. The account Other Deferred

Credits showed a year-end balance of
P1,840,979,556. Of this balance, the
significant amount of
P1,815,341,097.17 or 98.61 per cent
were not proper credits since these are
(a) receivables or credits with no
collections received from the
Concessionaires, (b) credits with
collections already earned or (c)
credits misclassified to the Other
Deferred Credits account. Details and
discussions are presented below.
4.4.1. Credits with no

collections received
a. Deferred Credits to Income-

Concession Fee COB pertains to the
CY 2017 Concession Fees totaling
P504.994 million which the
Management expects to collect from
the Concessionaires.
b. Deferred Credits to Income-

Penalty on delayed payment-
Concession Fee-MWSI refers to the
penalties on delayed remittance of
Concession Fees by MWSI from the
period 12 March 2001 to 20 July 2005
amounting to P1,118.315 million. The
collection of the penalty from MWSI
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was not allowed by the Rehabilitation
Court in an Order dated February 6,
2008. Subsequently, MWSS
requested COA for authority to drop
said amount from its books of
accounts.
c. Deferred Credits to Income-

Penalty on delayed payment-
Borrowing Cost-MWSI pertains to the
accounts of the MWSI totaling
P95.247 million that have not been
collected to date. This was
recognized in CY 2007.
4.4.2. Credits with

collections already earned
a. Other Deferred Credits to

Income-Miscellaneous-Others
pertains to the Grant received from
the International Bank for
Reconstruction and Development
(IBRD) in CY 2004 as assistance to
MWSS in the preparation for the
Manila Third Sewerage Project (Fund
91). The amount of P50.821 million
was already disbursed since the
subsidiary ledger for the Fund 91
showed a debit to the Construction in
Progress account. Hence, it is no
longer a proper credit to the deferred
credit account.
b. Other Deferred Credits to

Income-Disposal Public Auction refers
to the accumulated proceeds of
P31.124 million from the
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disposal/public auction of
unserviceable assets pending request
for the dropping from the books of the
corresponding PPE account and its
accumulated depreciation.
Section 2.2 (a) of the Memorandum of

Agreement (MOA) between MWSS
and the Department of Finance dated
September 16, 1997 provides that
35 per cent of the proceeds from
sales of non-operating assets
retained by MWSS shall be deposited
in a special account with the Bureau
of the Treasury (BTr).
Records disclosed that the proceeds

from the sale of unserviceable assets
in accordance with the MOA were not
recorded in the books. Consequently,
the PPE account and its accumulated
depreciation are overstated while the
gain/loss from sale of property is
understated on the year the
transaction occurred.
c. Other Deferred Credits to

Income-Cost of Lot for Housing
pertains to the undistributed
collections totaling P13.019 million
for the cost of lot-La Mesa Housing
Project and showed that the proceeds
from the sale of the lot was not
properly allocated in accordance with
Section 2.2(a) of the same MOA.
4.4.3. Credits
misclassified to Other Deferred Credit
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a. Other Deferred credits to

Income-Miscellaneous refers to the
advance payment of P1.753 million to
the consultant for the Pasig River
Environmental and Rehabilitation
Sector Development Program
(PREMRSDP) as described in the
subsidiary ledger. As such, the credit
to the account did not meet the
definition of a deferred credit to
income.
b. Other Deferred Credits to

Income-Cash Bond pertains to the
collection of cash bonds totaling
P42,100 for the rent of MWSS
premises for media production
purposes that are refundable to the
payees. This should have been
reclassified to other payable account.
Dormant Accounts
5. The accuracy and validity of year-end balances of various asset and liability accounts totaling P1.564 billion and P265.095 million, respectively, cannot be ascertained
due to lack of supporting documents and the accounts have been dormant for more than five years.
5.1. This is a consolidation of Recommended that Management Finance Aug- Dec- Ongoing
dormant accounts noted in prior year’s Management: informed that Department 17 18
audit observations including but not reconciliation of
limited to paragraphs B.1.6.4, B.1.8.2, a. Comply with the dormant accounts is
B.1.19, B.1.20.2, B.1.20.4, B.1.21.3, provisions of Section 111 still on-going.
B.3.1.2 and D.1.5 of the CY 2015 (1) and (2) as regards
Annual Audit Report. recording of the accounts;
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5.2. Our audit was anchored on b. Verify, review and
the following rules and regulations: analyze the dormant asset
and liability accounts in
5.2.1. Section 111 of PD No. 1145 paragraphs 5.3.1 and 5.3.3
states that: totaling P1.564 billion and
P265.095 million,
“(1) The accounts of an agency shall be respectively, as required
kept in such detail as is necessary to under COA Circular No. 97-
meet the needs of the agency and at 001 and effect necessary
the same time be adequate to furnish adjustment/s to arrive at the
the information needed by fiscal or correct account balances at
control agencies of the government. year-end; and
(2) The highest standards of honesty, c. For receivable

objectivity and consistency shall be accounts mentioned in
observed in the keeping of accounts to paragraph 5.3.1 totaling
safeguard against inaccurate or P32.054 million which were
misleading information.” dormant for more than 10
years and which may be
5.2.2. Also, COA Circular No. 97- written off, be guided by the
001 defines Dormant Accounts as an procedures in the write-off
individual account or group of accounts of dormant accounts as set
which balances remained non-moving forth in the COA Circular
for more than five years. Section III(B) No. 2016-005.
of the Circular also provides the
guidelines on these accounts, as
follows:
a. Dormant accounts in on active

fund shall be reviewed, analyzed and
reconciled together with the other
related accounts in the trial balance.
b. After the review and validation

of accounts, the following procedures
shall be followed:
b.1 Effect the adjusting journal entries

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and prepare the preliminary trial
balance;
b.2 Determine proper disposition of

reconciled and validated accounts;
b.3 If there are cash accounts which will

affect the books of the National
Treasury, furnish the Bureau of
Treasury (BTr) with the JV pertaining
thereto; and
b.4 If the analysis/review of the

accounts/funds is not possible due to
absence of records and documents, the
agency head concerned should request
for write-off and/or adjustment of
account balances from the COA,
supported by:
b.4.1 List of available records and

extent of validation made on the
accounts; and
b.4.2 Certifications and reasons why the

books of accounts/records, financial
statements/schedules and supporting
vouchers/ documents cannot be
located.
5.2.3. COA Circular No. 2016-005

dated 19 December 2016 further
defines Dormant Receivable Accounts
as accounts which balances remained
inactive or non-moving in the
books of accounts for 10 years or more
and where settlement/collectability
could no longer be ascertained.
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5.2.4. On the procedures to write-off

dormant accounts, Section 8 of the
same COA Circular provides that:
“8.2 The head of the government entity

shall file the request for authority to
write-off dormant receivable accounts,
unliquidated cash advances, and fund
transfers to the COA Audit Team
Leader and/or Supervising Auditor (SA).
No filing fee is required.
8.3 The request shall be supported by

the following documents:
a. Schedule of dormant
accounts by accountable
officer/debtor/government entity and by
account, certified by the accountant and
approved by the Head of the
government entity;
b. Certified relevant documents

validating the existence of the
conditions, as applicable, such as:
xxx
b.6 Proof of exhaustion of all remedies
to collect the receivables and demand
to liquidate the cash advances and fund
transfers, such as but not limited to
copies of served or returned demand
letters;
b.7 Certification by the responsible

officials of the entity to the effect that
there are no records/documents
available to validate claim; and
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b.8 Other justifications, like in the case

of request for write-off due to loss of
documents, the circumstances of the
loss should be stated in the letter-
request”
5.3. Verification of the trial balance

as of 31 December 2016 and its
supporting Subsidiary Ledgers (SL)
disclosed various assets and liabilities
totaling P1.564 billion and P265.095
million, respectively which remained
dormant. The details are discussed
below:
5.3.1. The Asset and liability

accounts totaling P64.496 million and
P110.140 million, respectively, which
have been dormant for more than 10
years are the remaining balances of
the P98.222 billion representing total
beginning or carry-over balances as a
result of the Agency’s adoption and
implementation of the electronic-New
Government Accounting System (e-
NGAS) starting 1 January
2007. The various Journal Entry
Vouchers (JEVs) are as follows:
5.3.2. It was observed that when

the beginning balances were set up, no
supporting documents were attached to
the submitted JEVs to at least, describe
the nature of the accounts hence, the
accuracy and validity of the recognized
beginning balances in CY 2007 are
doubtful. The details of which are shown
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below:
Dormant accounts as a result of

recognition of beginning balances in the
books
As of December 31, 2016
5.3.3. Further verification revealed

that there are asset and liability
accounts in the books totaling P1.500
billion and P154.955 million,
respectively, which remained dormant
for more than five years.
Material Variances of Loans Payable accounts

6. Unreconciled material variance of P1.526 billion existed between book balance of long-term liabilities account of P1.961 billion and the aggregate balance of P3.487
billion confirmed by the National Housing Authority (NHA), Bureau of the Treasury (BTr) and foreign lending institutions.
6.1. Section 111 of Presidential We recommended that Management Finance Aug- Mar- Ongoing
Decree No. 1445 provides that the Management require the informed that the Department 17 18
accounts of an agency shall be kept in Finance Department to NHA Loan and
such detail as necessary to meet the reconcile the discrepancies
JBIC/OECF will be
needs of the agency and at the same in the Loans Payable
account to arrive at the adjusted as
time be adequate to furnish the
information needed by fiscal or control correct balances at year- discussed in the audit
agencies of the government. The end. finding nos. A.14 and
highest standards of honesty, objectivity C.1.
and consistency shall be observed in
the keeping of accounts to safeguard
against inaccurate or misleading
information.

Report, a negative variance of
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P1,861.503 million was reported
between the confirmed balance and
book balance of long-term liabilities. We
then recommended that Management
reconcile its accounts for the NHA Loan,
ADB 779/780 IBRD 1272, JBIC/OECF
and NATIXIS Loan.
6.3. In the Agency Action Plan and

Status of Implementation (AAPSI) for
CY 2015, Management informed that
reconciliation of the loan accounts with
discrepancies is on-going.
6.4. Results of the Audit Team

confirmation from the NHA, BTr and
foreign lending institutions disclosed that
a material variance of P1.526 billion
remained unreconciled against the
balance per books of the long-term
liabilities as shown below:
6.5. As regards the Asian

Development Bank (ADB) and the China
Eximbank for the confirmation of ADB
1150, ADB 1379 and China Eximbank
loan balances, no replies were received
from the two banks.
Presentation of Other Assets

7. The validity and accuracy of the account Other Assets with year-end balance of P1.926 billion were doubtful due to non-adoption of the Philippine Public Sector
Accounting Standards (PPSAS) 16 and 31, and COA Circular 2015-010 on proper accounting recognition and inclusion of garnished, dormant, unreconciled and
unserviceable asset accounts totaling P1.326 billion.
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7.1. This is a reiteration of It is recommended that Management Finance Aug- Dec- Ongoing
previous year’s findings and Management: informed that Department 17 18
recommendations. subsidiary accounts
a. Reclassify the were already
7.2. The audit was anchored on subsidiary accounts of the identified in the Other
the PPSAS 166 and 317, COA Circular parcel of lands identified as Assets Account since
2015-0108 and the Conceptual idle totaling P593.706 2016, however,
6 PPSAS 16 – Investment Property provides that:
“x x x Investment property is property (land or a building – or part of a building – or both) held to earn rentals or for capital appreciation, or both, rather than for: (a) Use in the production or supply of goods or services, or
for administrative purposes; or (b) Sale in the ordinary course of operations. x x x;
“x x x Land held for a currently undetermined future use. (If an entity has not determined that it will use the land as owner-occupied property, including occupation to provide services such as those provided by national
parks to current and future generations, or for short-term sale in the ordinary course of operations, the land is regarded as held for capital appreciation). x x x” (emphasis ours)
7 PPSAS 31 – Intangible Asset states that:
“x x x An intangible asset is an identifiable non-monetary asset without physical substance. x x x”;

x x x A class of intangible assets is a grouping of assets of a similar nature and use in an entity’s operations. Examples of separate classes may include: x x x;
x x x (e) Copyrights, patents, and other industrial property rights, service, and operating rights; x x x”. (emphasis ours)
8
The following are the description of accounts as provided by the Revised Chart of Accounts (RCA) per Annex 1 of the COA Circular 2015-010:
Account Title : Investment Property, Land

Account Number : 10501010
Normal Balance : Debit
Description : This account is used to recognize the cost of land or part of a land held by the owner (or by the lessee under a finance lease) to earn rentals or for capital appreciation or both. Credit this account
for disposal or reclassification to Property, Plant and Equipment account when the property will be used other than to earn rental or for capital appreciation. For entities adopting the fair value model, this account shall be
debited/credited for the increase/decrease in fair value of investment property.
Account Title : Other Intangible Assets

Description : This account is used to recognize the cost of obtaining other nonmonetary assets without physical substance which grants the owner legal and contractual rights and future economic benefits not otherwise
classified under the specific intangible asset accounts. This includes trademarks, motion picture films, marketing rights, franchises and the like. Credit this account for termination and/or revocation of rights and benefits,
transfers or other disposal.
Account Title : Other Assets

Description : This account is used to recognize assets not falling under any of the specific asset accounts. Credit this account for disposal or reclassification to specific asset accounts.
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Framework9 for Financial Reporting as million to the appropriate reclassification in the
being prescribed by the PPSAS. Investment Property books of accounts is
account; yet to be done. One
7.3. Audit of CY 2016 balance of dilemma encountered
Other Assets (290) amounting to b. Reclassify the was that there is no
P1,925,927,202.19 disclosed that 64 subsidiary account Angat Investment Property
sub-accounts aggregating P593.706 Dam Water Rights Account although
million pertained to parcels of lands held amounting to P6.161 million request was already
by MWSS for currently undetermined to the appropriate Intangible made coursed to the
future use, hence remained idle. Asset account; COA Central Office
to assist them in the
c. Upon presentation creation.
of valid justification on the
prior year audit findings, Management also
reclassify the various emphasized that the
unserviceable/unoperational server of e-NGAS
assets on the appropriate could only
PPE accounts; and accommodate so
much and MWSS
d. Comply with PPSAS has yet to procure a
16 and 31 and COA Circular bigger server for the
2015-010 for the proper RCA implementation
recording and accounting of in CY 2017.
the financial transactions. accommodate so
much and MWSS
7.5. Further, we has yet to procure a
reiterated that Management: bigger server for the
RCA implementation
9
The Conceptual framework discusses that:
“Financial Reporting, as defined in the Conceptual Framework refers to the provision of information about an entity’s financial position, performance and changes in financial position that is useful to a wide range
of users in making economic decisions.
Financial statements also show the results of the stewardship of management, or the accountability of management for the resources entrusted to it. For this reason, financial information, specifically the elements
of financial statements or the quantitative information contained therein should be relevant and faithfully represented to become useful as basis for making decisions.
The Framework provides that an “asset” is recognized when these two conditions are present - It is probable that future economic benefits will flow to the entity; and the cost or value of the asset can be measured
reliably.”
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a. Provide reliable in CY 2017.
basis for recognition,
measurement, presentation
and disclosure in the books
of accounts of the Other
Assets (290) amounting to
P1.323 billion; and
b. On the cash
accountabilities transferred
to Other Assets account,
require the Finance
Department to justify the
recording of the balances to
the Other Assets account;
substantiate the validity of
these accounts by providing
sufficient and relevant
supporting
documents/information and
immediately identify and
take legal action to run
against erring accountable
officers and MWSS
creditors responsible for the
outstanding cash
accountabilities.
Accounts Receivable Collection Efficiency
8. The probability of collecting Accounts Receivable totaling P1.186 billion was remote since these accounts have been outstanding for 5 to 20 years.
Due from Officers and Employees and COA reiterated their Management Finance Aug- Sept- Ongoing
Loans Receivables accounts amounting previous year’s committed to comply Department 17 18
to P26.786 million and P5.979 million, recommendations that with audit
respectively, registered a very low Management: recommendations.
collection efficiency of 8.75 per cent and
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1.12 per cent, respectively for the year. a. On Long
Outstanding Receivables,
8.1. Accounts Receivable showed request from the
a year-end balance of with details Commission on Audit for
below. authority to write off from
the books, accounts which
qualify for derecognition
The above accounts were found pursuant to COA Circular
outstanding for five years to 20 years. No. 97-001 on the
Hence, their collectability was very low. Guidelines on the Proper
Disposition/Closure of
Dormant Funds, and COA
8.2. For CY 2016, no movement in Circular No. 2016-005 on
the above receivable accounts was Guidelines and Procedure
noted, as discussed below. on the Write-off of Dormant
Receivable Accounts in
8.2.1 Water Sewer Accounts particular, the water sewer
customer accounts;
a. The amount of
P1,116,986,530.01 represents accounts b. On Raw Water
from water service customers prior to accounts, enforce
MWSS’ privatization in 1997, Paragraphs 14 and 15 of
specifically covering the period 1988 to the Policies and Guidelines
1996. Details comprising the P1.117 for Raw Water Accounts as
billion dormant accounts were not regards penalties and
established since summary of interest on late payments;
customers and subsidiary ledgers are
not available c. On Due From
Officers and Employees and
b. The only available document Loans Receivables, send
supporting the receivable account was regular statement of
the voluminous collection stubs kept at accounts to
the MWSS storage room. To date, officers/employees with
provision amounting to P1.117 billion outstanding loans to ensure
was set up for the potential loss from that the loans will be settled
said receivables. Be it noted that within the period stipulated
collection of receivables is an agency in the contract; and
responsibility but Management’s
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inability to collect the receivables d. Initiate legal action
resulted in a loss to government of to collect receivables from
P1.117 billion. officers/employees and
individuals who are no
8.2.2 Raw Water longer connected with the
MWSS.
a. Receivables from Raw Water
arise from sale of service water to areas
not covered by the service areas of
MWSI.
b. Seven Raw Water customers

were also inactive and balances still
remained outstanding, with one
customer Mr. Pelagio Ramos having
significant receivable amount of
P1,504,447.86. Records also showed
that last payment on the account
occurred in 2014 for water consumption
in 2011. As of 31 December 2016, total
outstanding balance of inactive Raw
Water Customers amounted to
P1,514,430.08, with details as follows:
c. As mentioned earlier, it is the

operating responsibility of the agency to
collect these receivables. Thus,
Management is expected to exert efforts
to recover/collect said receivables being
legitimate income and source of funds.
However, not a single cent was
collected during the year. Also, it has
been noticed that allowance for bad
debts was not provided for the raw
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water accounts, which is not in line with
paragraph 72 of PPSAS 2910 which
states:
d. In addition, interest charges

were not applied to late payments made
by raw water customers as required in
paragraphs 14 and 15 of the Policies
and Guidelines for Raw Water Accounts
which state that:
“Payment made more than ten (10)

working days after the receipt of bill
shall be subject to interest charges.”
“An account left unpaid after the due

date is subject to interest charge
computed at one and one-half (1-1/2%)
per cent per month of the amount due.
e. Audit disclosed that

interest/penalties amounting to
P767,890.66 were not charged to late
payments or payments made after due
date by the following Raw Water
customers:
f. Penalty for payments after

due date was also included in the
Statement of Accounts billed by MWSS
to its Raw Water customers.
10 PPSAS 29, Para 72. “If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortized cost has been incurred, the amount of the loss is
measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial
asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset shall be reduced either directly or through use of an allowance account. The
amount of the loss shall be recognized in surplus or deficit. ”
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8.2.3 Inter-Agency Transfer account
a. The receivables from

government agencies showed
undocumented and dormant balances
totaling P5,004,784.03.
b. As previously discussed in
prior years’ audit observations, these
accounts remained non-moving for
more than 10 years. The nature and
purpose of these accounts could not be
determined due to unavailability of
historical data to support their
existence. Thus, collection of
receivables is nil.
c. As to the DBM Procurement

Service account, the receivable was set
up in CY 2011 under JEV-2011-03-
001748 wherein payment for the
procured supplies in February 2007 was
more than the amount delivered
resulting in a discrepancy of
P11,344.50.
8.3. Accounts, Due from Officers

and Employees and Loans Receivables
amounting to P26.786 million and
P5.979 million, respectively, as of year-
end, showed a very low collection
efficiency of 8.75 per cent and 1.12 per
cent, respectively, for the year.
8.3.1. The OIC-Finance Department

in his letter dated 08 December 2016
addressed to the Human Resources
Department, requested to look into the
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possibility of enforcing collection of
monthly amortization in order that loans
contracted by employees will be fully
paid within the period stipulated in the
loan contracts. However, if this is
effected, the monthly take-home pay of
the employees would be lower than the
allowable P3,500.00 as required by law.
It was agreed though, that once the
CPCS and ERIP are approved and
implemented, all deductions would be
enforced. But to date, CPCS and ERIP
are yet to be approved and
implemented.
As a result, the amortization of loan is

still kept at a minimum through salary
deductions:
8.3.2. In CY 2016, for the Due from

Officers and Employees on housing and
car loans (Account 123) percentage
decrease from CY2015 balance, was
below 15 per cent as presented in
the table above. There is a possibility of
the loans not being settled within the
stipulated period since the maximum
deduction from the employees’ salaries
is around P6,000.00 and the minimum
is only P100.00 per month or P1,200 a
year.
8.3.3. Further verification disclosed

that out of the P26.786 million
outstanding balance due from Officers
and Employees, P5,391,173.94 or
20.13 per cent represents receivables
from individuals who are no longer
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connected with the MWSS, thus
collection can no longer be effected
thru salary deductions.
8.3.4. With regard to receivables

from non-MWSS officers and
employees on housing and car loans
(Account 126), the latter was reduced
by P67,500.00 in CY 2016. The said
amount was deducted from the amount
to be received by OGCC lawyers in their
reimbursement for transportation and
miscellaneous expenses for April to
December 2015. The claim is
questionable since previous claims by
OGCC lawyers were disallowed.
Unreconciled/Unverified Accounts
9. Asset and liability accounts with balances aggregating P578.853 million and P884.548 million, respectively, remained unreconciled/unverified, thus, the reliability and
accuracy of the account balances were doubtful.
9.1. This is a reiteration of a prior COA reiterated their prior Management Finance Aug- Dec- Ongoing
years’ audit observation. years’ audit commented that it will Department 17 18
recommendation that hire a contract of
9.2. Section 111 of Presidential Management facilitate the service personnel to
Decree 1445 states that: immediate reconciliation of assist in the
the unreconciled/unverified verification/reconciliat
(1) The accounts of an agency accounts for fair ion of accounts
shall be kept in such detail as is presentation of the
necessary to meet the needs of the Statement of Financial
agency and at the same time be Position.
adequate to furnish the information
needed by fiscal or control agencies of
the government.
(2) The highest standards of

honesty, objectivity and consistency
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shall be observed in the keeping of
accounts to safeguard against
inaccurate or misleading information.
9.3. With the adoption by MWSS

of the e-NGAS in 2007, maintenance of
subsidiary ledgers for all accounts is
necessary as they support the balance
of the general ledger account. However,
there were General Ledger (GL)
accounts with balances prior to
privatization in 1997 with no subsidiary
ledgers. To establish the e-NGAS, all
GL accounts without subsidiary ledgers
were temporarily recorded and lumped
to the suspense account 000-00-99.
Subsequently, Management prepared
the subsidiary ledgers for each of the
GL accounts under 000-00-99 account
subject to reconciliation/verification.
9.4. In the past years,
Management took the initiative to
gradually reduce the
unreconciled/unverified accounts. To
further address the issue and as
mentioned in the Agency’s Action Plan,
Management hired Contract of Service
employees specifically tasked to
reconcile the accounts.
9.5. As reported in previous years’

Audit Reports, the MWSS’ Statement of
Financial Position as at year-end
showed unreconciled/unverified
balances of asset and liability accounts
totaling P578.85 million and P884.55
million, respectively. Details are as
follows:
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9.6. Compared to last year’s

balance of P588,742,507.51, there was
an insignificant decrease of
P9,889,602.38 or 1.68 per cent to the
unreconciled/unverified balance of the
total assets, as a result of
Management’s effort to clean up the
books. As regards the liability account, it
was reduced by P1,000.00 merely due
to reclassification of entry.
9.7. The accuracy and reliability of

the year-end account balances in the
Statement of Financial Position
remained doubtful and that the
unreconciled/unverified accounts could
overstate or understate the assets and
liabilities as of year-end.
.
Advances to Contractors
10. Account Advances to Contractors with year-end balance of P357.226 million remained unrecouped/outstanding for three years and documents pertaining to the
projects were not made available to determine the persons liable or responsible for the non-recoupment.
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10.1. This is a reiteration of prior Management Finance Aug- Mar- Ongoing
year’s audit observations as to the long COA recommended that submitted the Department 17 18
outstanding advances to contractors Management: following comments:
totaling P278.402 million at year-end
which was doubtful due to incomplete a. Analyze the a. On the
data on the projects for which the advances to contractors Advances to
advances were granted and the lack of account to reflect in the Contractors that have
documents needed to determine the books the correct and been dormant prior to
persons liable/responsible for the accurate balance as at year- CY 2013,
non-recoupment. end; Management
informed that the
10.2. Our audit was anchored on b. Determine the responsible
Section 5.3 of the same Annex of the officers/employees employees who
Revised IRR of RA 9184 states that, responsible for failure to processed these
“The procuring entity shall deduct the deduct the outstanding Contractors
following from the certified gross advances from the progress payments have
amounts to be paid to the contractor as billings and institute already been
progress payment, xxx; b) Portion of the administrative sanctions; separated and/or
advance payment to be recouped for retired from the
the month.” c. Initiate legal action service, but they
against the contractors to commit to exhaust all
10.3. Audit of the year-end balance recoup the advances; and possible means to
of Advances to Contractors account trace the contractors,
totaling P357.226 million remained d. as a Rejoinder, as well the people
unrecouped and data/information Management should who may have
relevant to the projects were provide COA a copy of (a) knowledge of these
incomplete or not available to determine FIDIC Conditions of unresolved issues.
the persons liable/responsible for the Contract for Construction to
non-recoupment, as discussed below. validate Management’s b. With regard
comment and (b) the recommendations
10.3.1. Based on e-NGAS, the complete addresses of the on the long
account Advances to Contractor totaling contractors with outstanding outstanding
P357.226 million remained dormant balances in the books. advances,
since January 2013, which consisted of c.Management
B will
the following advances granted to the abide
l with what is
following contractors: applicable.
a
c
10.3.2. Since the advances to k
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contactors remained dormant since CY l
2013, audit observation and i
recommendation were continuously s
reiterated for Management to (a) t
immediately submit details of the said
advances; (b) initiate legal action to t
recoup the advance payments to h
contractors; (c) determine and hold e
liable the persons responsible for the
non-recoupment; and (d) take action for c
the blacklisting of the contractors who o
have outstanding advances from n
MWSS. t
r
10.3.3. Moreover, in the course of a
validating available documents c
pertaining to the grant of outstanding t
advance payments for various contracts o
with Filipino Pipes Foundry Corporation r
and MMRR Construction amounting to s
P39.264 million and P34.451 million,
respectively, it was noted that no w
deduction was made in majority of their h
periodic progress payments which o
resulted in unrecouped advance
payments totaling P34.793 million and h
P32.573 million, respectively, as a
follows: v
e
10.3.4. In the AAPSI for the AAR CY
2015, Management informed that o
billing was again sent to contractors u
and those without addresses were t
verified from BIR. In our letter dated 10 s
January 2017 addressed to Finance t
Manager, we requested submission of a
the complete addresses of the n
contractors with outstanding balances d
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in the books. However, to date, no i
reply was received regarding said n
request, thus, no validation can be g
made.
a
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a
n
c
e
s
f
r
o
m
M
W
S
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.
d.
Property, Plant and Equipment (PPE) - Land
11. Unsubstantiated adjustments totaling P267.21 million in the PPE - Land account, thus affecting the accuracy and reliability of the account balance of P19.983 billion at
year-end.
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11.1. This is a reiteration of our CY We reiterated our prior Management Finance and Aug- Mar- Ongoing
2014 and CY 2015 audit observation years’ audit informed that Property 17 18
pertaining to the validity of adjustments recommendation that documentation to the Mgmt.
in dropping from the books of accounts Management: adjustment to be Department
and the adjustment to record the prepared are still
difference in the cost of the sale of On the adjustment insufficient to warrant
various Land totaling P267.207 million amounting to P228.18 the entries to be
which were not established due to million - made, thus the
inadequate documentation. We recommendation was
recommended that the management a. Submit proof that put on hold.
should substantiate the entries made by there was an appraisal on
submitting valid proof and make the the land in previous period Nonetheless, as
necessary adjustments to the books. pertaining to the land under recommended,
Details are shown below. TCT No. 61126; and adjustments will be
done as soon as
b. Prepare the documents are
necessary and appropriate found.
adjustments to derecognize
the carrying value of the
land under TCT No. 61126
since it was already sold in
CY 2006.
On the adjustment
amounting to P39.03 million
-
c. Secure from Land

Registration Authority (LRA)
the information on the actual
land area to determine the
correct total of land sold to
Silhouette Trading; and
d. Submit proof of
valuation of the land under
TCT No. 36069 to
corroborate the erroneous
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measurement recognized in
the books once proved that
there is typographical error
in the land area. Thereafter,
analyze the transaction and
prepare necessary
adjustments.
Doubtful balance of PPE- General Administrative Equipment (GAE)
12. The validity and accuracy of the year-end balance of PPE-GAE accounts with carrying amount totaling P203.325 million was doubtful due to unaccounted disposed
unserviceable GAE amounting to P29.527 million as the variance between the assets per Property Management Department and Finance Department’s records.
The non-immediate disposal of COA reiterated their prior Management Finance and Aug- Dec- Ongoing
unserviceable assets totaling P213.623 recommendations that commented that they Property 17 18
million as required under NBC 425 Management: will adhere with the Mgmt.
resulted in further deterioration and audit Department
decline in their value. a. Require the recommendations.
reconciliation of records
Moreover, deficiencies were noted in between the Finance and
the sale of 53 units of unserviceable Property Management
assets in CY 2014. Departments to examine the
discrepancy on the
12.1. This is a reiteration of prior disposal/sale of the
years’ audit observation with the unaccounted unserviceable
recommendation to reconcile the GAE and make the
variance accounted on the disposed necessary adjustments;
GAE as reported by the PMD against
Finance Department and to comply with b. Conduct periodic
NBC 425 on the disposal of the inventory and inspection of
government property. all unserviceable GAE and
cause their immediate
12.2. Our audit was guided by the disposal through public
Philippine Public Sector Accounting auction to avoid further
Standards (PPSAS) and NBC 425 deterioration and decline in
Manual on Disposal of Government value of the subject assets
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Property. and generate additional
funds for the corporation;
12.2.1. PPSAS 1, Presentation of
Financial Statements, requires the entity c. Submit justification
to present information, including on the negotiated price for
accounting policies, in a manner that the sale of unserviceable
meets a number of qualitative vehicles that was lower than
characteristics. Reliability as one of the 80 per cent of the appraised
qualitative characteristics provides that value which is not in
reliable information is free from material accordance with the Manual
error and bias, and can be depended on on Disposal of Government;
by users to represent faithfully that and
which it purports to represent or could
reasonably be expected to represent. d. Reconcile the
Finance and Property
12.2.2. Part I. Section A of NBC 425 Management Departments’
Manual on Disposal of Government records on the 53 sold
Property provides that: unserviceable vehicles and
make the necessary
“Property disposal is the third and last adjustments.
phase in the supply management cycle
where the first two phases consist of
procurement and utilization and
maintenance. Disposal occurs when a
piece of equipment or property can no
longer provide efficient service or
though still working, has been rendered
useless due to obsolescence.
Disposal proceedings should be

immediately initiated to avoid further
deterioration of the property and
consequent depreciation in its value. A
systematic and timely disposal will yield
benefits of, among others, a higher
appraised value and by enabling
storage areas available for other
purposes.”
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While Part III, Section J states that:
“In case the second public bidding fails,

the property may be sold at a private or
negotiated sale. Negotiation within one
(1) month from the date of the second
failed bidding shall be done with the
bidders of the first and/or second failed
bidding and other prospective bidders
(such as those who obtained bid forms
but did not submit bid tenders) at a price
not lower than 80% of the appraised
value. If the negotiation is done after
one (1) month, participants in the
negotiation shall be expanded to include
other potential buyers aside from those
aforementioned.”
12.3. The GAE account which

includes various items of PPE showed a
carrying amount of P203.325 million as
of December 31, 2016.
12.4. During the CY 2014 audit on

the disposal/sale of unserviceable motor
vehicles and other transportation
equipment, discrepancy was observed
amounting to P33,995,067.84 between
the PMD inventory report and the
accounting records. The PMD reported
P107,551,580.26, while the accounting
records reflected five journal entries
pertaining to the dropping of GAE
totaling P73,556,512.42 as presented
on the next page. This was reported in
AAR for CY 2014 and reiterated in CY
2015.
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12.5. In the current year audit, three

adjustments totaling P4,468,405.00
were posted to address the audit
recommendation. The journal entries
were drawn to drop the GAE accounts
from the books that pertained to the
sale of Motor Vehicles and Other
Transportation Equipment thru public
auction in CY 2013, thus, further
reducing the amount of noted
discrepancy to P29,526,662.84.
12.6. Also, as reported in AAR for

CY 2014 and reiterated in CY 2015, it
was observed that Management did not
comply on the timely disposal of
unserviceable assets as prescribed by
NBC No. 425 - Manual on Disposal of
Government Property.
12.6.1. The summary list of returned

GAE from previous projects of MWSS
showed unserviceable GAEs turned
over by the concessionaires from CYs
2001 to 2014 with original cost of
P321.175 million. While some of these
unserviceable items have been
disposed at P107.552 million, the
remaining assets of P213.623 million
have been awaiting disposal to date.
12.6.2 Management could have

prevented deterioration of these assets
and generated additional funds to
finance its operations, had the assets
been disposed earlier as provided in
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NBC No. 425. Because of the
non-immediate disposal, the salvage
values of the assets had declined.
12.7. Further, deficiencies were

noted on the sale of 53 units of
unserviceable vehicles in CY 2014.
12.7.1. The reasonableness of the

negotiated price of the 53 units of
unserviceable vehicles sold in CY 2014
in the amount of P2,421,241.43 as
supported by JEV No. 2014-09-004219
was not ascertained due to the absence
of justification on the further reduction of
negotiated price to lower than 80 per
cent of the appraised value of
P3,781,627.24 after failure of two public
biddings held on July 8 and 30, 2014,
contrary to the Manual on Disposal of
Government Property.
12.7.2. There was no reconciliation

on the noted discrepancy in the unit
costs of the 49 vehicles out of the 53
unserviceable vehicles sold in CY 2014
which resulted in over/understatement
in the recognition of gain or loss on
disposal and the cost and related
depreciation charges dropped from the
books.
Construction in Progress
13. The reliability of the balance of Construction in Progress (CIP) totaling P677.033 million was doubtful due to the inclusion of completed projects and unreconciled
accounts amounting to P159.654 million and P453.902 million, respectively.
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13.1. This is a reiteration of COA reiterated their prior Management Finance Aug- Dec- Deferred until new
previous year’s findings and years’ recommendation that submitted the Department 17 18 personnel are
recommendations. Management: following comments: hired to perform
the reconciliation
13.2. Our audit was guided by the a. Review and analyze a. Analysis
following PPSAS and COA Circular No. the cost of completed and review has been
2015-010 dated December 1, 2015 projects and make the ongoing with the
regarding the Adoption of the Revised necessary reclassification to hiring of the Contract
Chart of Accounts (RCA): their appropriate PPE of Services (COS)
accounts supported with but was stopped due
a. PPSAS 1, Par. 27 states that Certificate of Completion to non-renewal of the
“Financial statements shall present fairly and Acceptance; and latter.
the financial position, financial
performance, and cash flows of an b. Review the b. Management is
entity. Fair presentation requires the unreconciled accounts now hiring new COS
faithful representation of the effects of classified under the CIP and with the appointment
transactions, other events, and effect the necessary of the new
conditions in accordance with the adjustments. Administrator and
definitions and recognition criteria for reconciliation will be
assets, liabilities, revenue, and continued.
expenses set out in PPSASs.”
c. With the
b. RCA provides that dismissal of five
Construction in Progress account is regular employees of
used to recognize the accumulated cost the Finance mostly
or other appropriate value of various involved in this
Property, Plant and Equipment (PPE) function will however
which are still in the process of delay the
construction or development. This reconciliation until
account will be credited to reclassify it to such time that new
the appropriate PPE account upon employees are
completion. appointed to the
vacant positions.
13.3. The CIP account balance of
P677.033 million as of December 31,
2016 consisted of projects financed thru
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foreign loans and were accounted under
various funds set up for the purpose, as
follows:
13.4. Prior years’ audit revealed

that various projects were already
completed with accumulated cost
aggregating P159.654 million but still
presented under CIP account.
Information obtained from prior year
audit as to the date of completion are
summarized below:
13.5. Audit also disclosed that the

above projects were no longer included
in the Consolidated Quarterly Report on
Government
Projects/Programs/Activities as of
December 31, 2016.
13.6. Further, it was also observed

that 28 sub-accounts of the account
Construction in Progress under
Corporate 05 Fund balance totaling
P453.902 million remained
unreconciled.
13.7. The presence of these

completed projects and unreconciled
accounts in the CIP account resulted in
the understatement of the appropriate
PPE accounts, overstatement of CIP
and overstatement of Retained
Earnings for the unrecognized
depreciation expenses.
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Domestic Loans Payable - NHA
14. The validity of the account Domestic Loans Payable- NHA amounting to P98.795 million was doubtful due to the absence of a Memorandum of Agreement (MOA)
signed by and between the MWSS, National Housing Authority (NHA), MWSI and MWCI.
Lack of MOA between the parties, the COA recommended that Management Finance Aug- Mar- Ongoing
validity of the account Loans Payable- Management: commented that it will Department 17 18
NHA was doubtful. drop from the books
a. Execute the MOA the account Domestic
14.1. Section 59 of P.D. No. 1445 - with the NHA and the two Loans Payable-NHA
Audit of Liabilities provides that: Concessionaires to Loan and the
establish the validity of the corresponding asset
“In his audit of liabilities, the auditor Loans Payable; and include account since there
shall seek to establish that all the loan account in the debt is no MOA to support
obligations of the agency have been service letter to the two the loan.
accurately recorded; only bonafide Concessionaires (MWSI
obligations of the agency have been and MWCI); and COA then request
included; the obligations incurred are submission of the
properly authorized; xxx.” b. Determine and journal voucher and
collect from the supporting
14.2. The MWSS Notes to Financial Concessionaires the prior documents to drop
Statements (FSs) in CY 2016 disclosed year’s debt service of the from the books the
that the NHA loan was transferred by loan account. NHA Loan.
NHA to MWSS before the privatization
that financed the transfer of water and
sewer systems of Tondo Foreshore,
Dagat-Dagatan and Kapitbahayan. The
validity of the account is still subject to
confirmation and subsequent
preparation of MOA between MWSS,
NHA and the two concessionaires.
14.3. Moreover, NHA Schedule and

Notes to FS of the account Loans
Payable-Domestic as of December 31,
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2016 showing a balance of
P95,278,405.89 revealed that the loan
is still recorded in the NHA books with a
notation that it be assumed by MWSS
pursuant to the MOA between MWSS
and NHA which is still under
negotiation.
14.4. Likewise, NHA Notes to FS

states that the IBRD-Urban III,
LA#1821- P95.278 million (net of
overpayment to Bureau of the Treasury
(BTr) of P1.723 million) pertains to loan
to be assumed by MWSS for water
system funded by the World Bank under
the Zonal Improvement Projects is
subject to issuance of negative Advice
of Allotment by the BTr.
14.5. Further, in a letter response to

COA r query dated 14 February 2017 to
the Deputy Administrator for
Administrative and Support Services on
the status of the account, Management
quoted the report of Mr. Mario V.
Canaria dated 30 June 2007, a former
MWSS contractual employee, portion of
which states “In March 2006, the
president of MWCI wrote a letter
acknowledging the transfer of assets
and the corresponding Urban III loan
subject to appropriate adjustments in
the 2008 rate rebasing. For projects
under the concession area of MWSI
there was still no report if the water and
sewer systems are operational or not.”
Presently, the NHA is finalizing the
Deed of Transfer of the said Urban III
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Projects. Once MWSS acknowledged
the transfer, the corresponding loan will
be an additional loan payable to the
National Government and therefore
constitutes additional concession fee
from the two Concessionaires.”
14.6. The Finance Department

further averred in their letter response
that the information contained in a
report submitted by Mr. Canaria is the
only data it can provide at the moment.
14.7. Furthermore, verification of

the demand letters sent by the MWSS
to the Concessionaires on the
Concession Fee under Section 6.4 (a)
of the Concession Agreement,
representing actual share of the
company on the total principal and
interest, fees or other amount due under
an MWSS loan, the Loans Payable-
NHA was not included.
14.8. It is also worth mentioning

that in a confirmation reply from the BTr
on the foreign loan balance/s accounts
of MWSS-CO as of December 31, 2016,
the aforementioned loan account was
not mentioned, however, the schedule
attached thereof showed IBRD # 1821
under the account of the NHA.
Other Payables – Trust Liabilities
15. The initial deposit of SM Prime Holdings Inc., including interest earned, totaling P36.250 million for the supposed lease of MWSS property along Katipunan Avenue
was still retained in the MWSS’ books due to the refusal of the former to accept the deposit despite declaration by the MWSS Board of Trustees that the pertinent
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contract is null and void. This might expose the MWSS of possible lawsuit for having no legal right to retain the same.
In addition, the 20 per cent final tax on interest earned was not deducted but was taken up as bank charges, thus, reported as expense of the MWSS.
15.1. This is a reiteration of prior COA recommended that Management Finance and Aug- Mar- Ongoing
year’s audit observations as to the risk Management: submitted the Legal 17 18
of possible lawsuit for having no legal following comments: Services
right to retain the initial deposit received a. Immediately Department
from SM Prime Holdings Inc. consign to the Court the a. Relative to
initial deposit/ payments the initial deposit
15.2. Our audit was anchored on received from SM Prime made by SM Prime
Republic Act No. 386 otherwise known Holdings Inc., including Holdings Inc. totaling
as The Civil Code of the Philippines. interest earned thereof (net P36.25 million for the
of 20 per cent final tax) supposed lease of
15.2.1 Article 1231 of which otherwise, , take possible MWSS property,
enumerated various modes of legal action to resolve the legal action has
extinguishing obligations, among them issue on the Lease already been taken
is by payment or performance. Agreement or consider on the said issue with
other courses of action; and Case No. R-QZN-15-
15.2.2 Further, Articles 1256 to 1260 07616-CV filed with
thereof discussed tender of payment b. Refrain from the Regional Trial
and consignation, as follows: debiting the account bank Court Branch No.
charges/taxes, duties and 223 of Quezon City;
“Art. 1256. If the creditor to whom licenses to record the 20 per
tender of payment has been made cent final tax on the interest b. MWSS
refuses without just cause to accept it, income earned. legal counsel, the
the debtor shall be released from OGCC, will include in
responsibility by the consignation of the the subject matter the
thing or sum due. request for the Court
to grant permission to
Art. 1257. In order that the consignation consign the amount.
of the thing due may release the obligor, As soon as granted,
it must first be announced to the MWSS will
persons interested in the fulfilment of immediately consign
the obligation. the amount including
the interest earned to
The consignation shall be ineffectual if it the Court; and
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is not made strictly in consonance with
the provisions which regulate payment. c. On the take
(1177) up of bank
charges/taxes, duties
Art. 1258. Consignation shall be made and licenses to
by depositing the things due at the record the 20 per
disposal of judicial authority, before cent final tax on
whom the tender of payment shall be interest income
proved, in a proper case, and the earned, Management
announcement of the consignation in will abide with the
other cases. recommendation.
The consignation having been made,

the interested parties shall also be
notified thereof. (1178)
Art. 1259. The expenses of

consignation, when properly made, shall
be charged against the creditor. (1178)
Art. 1260. Once the consignation has

been duly made, the debtor may ask the
judge to order the cancellation of the
obligation.”(emphasis supplied)
15.3. A Contract was entered into

by and between MWSS and SM Prime
Holdings, Inc. on May 27 2010 for the
lease of MWSS property along
Katipunan Avenue for which the latter
paid the sum of P33,248,892.86 as the
initial deposit on 13 July 2010.
15.4. However, on 12 August 2010,

the MWSS Board of Trustees declared
the Contract null and void for being non-
compliant with the policies and
guidelines set by the Office of the
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Government Corporate Counsel
(OGCC) as discussed in Board
Resolution No. 2010-113.
15.5. Verification disclosed that the

amount of P36,250,872.94, including
the interest earned of P3,001,980.08,
was recognized in the books under the
account Other Payables-Trust
Liabilities. Details are as follows:
15.6. The MWSS exerted efforts to

return the sum of money to the SM
Prime Holdings, Inc., but to no avail.
15.7. Considering that the Contract

was declared null and void, the MWSS
might be at risk of possible lawsuit for
having no legal right to retain the total
amount of P36.251 million
maintained in a separate bank account
No. 1451-1140-20.
15.8. It was further observed that

Management did not deduct the 20 per
cent final tax on the interest income
earned, but was treated as bank
charges which eventually reported as
expense of the MWSS.
The pro-forma entry made to take-up
the interest income is as follows:
Cash in Bank – Local Currency,

Time Deposits xxx
Bank Charges/Taxes, Duties and
Licenses xxx
Other Payables xxx
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15.9. The amount credited to the
account Other Payables represents the
gross interest income earned while the
account Bank Charges was debited for
the 20 per cent final tax. Having no legal
right to retain the funds which is
supposed to be returned to SM Prime
Holdings Inc., the corresponding 20 per
cent final tax should not be recorded as
an expense of MWSS but instead
deducted in the amount of interest
income recognized in Other Payables,
and in effect, be deducted in the amount
that will be returned to SM Prime
Holdings, Inc.
The entry that should have been made

is as follows:
Cash in Bank – Local Currency, Time

Deposits xx
Other Payables xxx

Report, we recommended that
Management immediately take the best
possible legal action to resolve the
issue on the Lease Agreement.
However, to date, the funds remain in
trust with MWSS despite efforts by
Management to return the amount
including interest earned thereof (net of
20 per cent final tax) to SM Prime
Holdings Inc., which refused to accept
the sum of money.
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Sinking Fund account
16. The propriety to derecognize the account Sinking Fund in the amount of P29.510 million was questionable due to non-reconciliation of the balance with the Bureau of
the Treasury (BTr) to ascertain the correct sinking fund balance at year-end.
16.1 In CY 2015, the accuracy and Management will Finance Aug- Mar- Ongoing
validity of the year-end balance of COA recommended that reconcile the balance Department 17 18
account Sinking Fund at P29.510 million Management: of Sinking Fund with
was highly doubtful as confirmation from the BTr.
the BTr showed negative sinking fund a. Explain the earned
balance. interest of P77,321.51 even
after the redemption date of
16.2 On 12 December 1989, a the Angat Serial Bonds and
Sinking Fund was set up in connection remittance of the remaining
with the issuance of the MWSS Angat balance of the Sinking Fund
Serial Bonds which matured on 30 April by the BTr; and
2002. The Fund is being managed by
the Bangko Sentral ng Pilipinas and b. Reverse the entries
later on transferred to the Bureau of the made in JEV-2016-12-
Treasury (BTr) on 30 June1995. 004219 (i) pending
reconciliation of the balance
16.3 In previous Annual Audit of the Sinking Fund Reserve
Report, we recommended to with the BTr; and (ii)
immediately reconcile with the BTr the submission of the copy/ies
sinking fund balance considering that of bank statement/s of the
the BTr consistently confirmed the Current Account No. 244-
non-existence of the fund. 500163-8 maintained by
MWSS with PNB MWSS
16.4 As at year-end, the account Branch.
Sinking Fund reported a zero balance
due to the adjustment made under JEV-
2016-12-004219 dated 28 December
2016 amounting to P29,510,406.78
since Management claimed that the
Angat Serial Bonds were already
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redeemed and paid by the BTr per PNB
Credit Advice dated 4 September 2003
under Current Account No. 244-500163-
8. While the JEV was supported with
some documents, the bank statements
pertaining to this current account have
not been submitted to validate the
adjustment.
16.5 On the contrary, the general

ledger showed interest totaling
P77,321.51 that was earned for the 4th
quarter of 2003 and 3rd quarter of 2004,
way beyond the maturity date of the
Angat Serial Bonds on 30 April 2002
and payment date of the sinking fund on
4 September 2003. Further, no
document was submitted to confirm that
the interest earned after redemption
date was indeed credited to the MWSS
account. The details of the interest
earned after redemption date were as
follows:
16.6 Also, the journal voucher

revealed that no reconciliation with the
BTr was made despite the audit
recommendation and that the attached
documents were insufficient to support
the derecognition of the account.
16.7 It can be deduced that

Management merely prepared an
adjusting entry to conform the MWSS
book balance with the BTr records
without proper reconciliation and
supporting documents.
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Understatement of Foreign Loans Payable-ADB 1746-PHI and Loss on Forex Exchange (FOREX)
17. The reported year-end balance of the account Foreign Loans Payable of P8.761 billion and Loss on Foreign Exchange of P510.984 million were unreliable due to:
a. Account Foreign Loans Payable (ADB 1746-PHI) and the related Loss on Foreign Exchange were understated by P19.945 million and P0.623 million, respectively,
due to improper adjustment made in the books; and
b. Exchange differences arising from the settlement of foreign loans were not recognized on the settlement date, which is not in accordance with PPSAS 4.
17.1 This is a reiteration of prior COA recommended that Management will Finance Aug- Dec- Completed
year’s audit observations. Management: confirm to the BTr the Department 17 17
correct balance of the
17.2 Our audit was anchored on a. Prepare the ADB1746-PHI loan
Sections 23, 27 and 32 of Philippine necessary adjusting entry to since the book
Public Sector Accounting Standard correct the understatement balance is based only
(PPSAS) 4 on the effects of changes in in the reported year-end in the amount
foreign exchange rates provides that: balance of Foreign Loans provided by the
Payable – ADB 1746-PHI MWCI. With regard to
“Section 23. A Foreign currency and its related Loss on the foreign exchange
transaction is a transaction that is FOREX amounting to differences,
denominated or requires settlement in a P19.945 million and P.623 Management has
foreign currency, including transactions million, respectively; committed to comply
arising when an entity: with the audit
b. Reconcile with the recommendations.
(a) Buys or sells goods or Bureau of the Treasury on
services whose price is denominated in the outstanding loan
a foreign currency; balance of ADB 1746-PHI
between records per books
(b) Borrows or lends funds when and per BTr; and
the amounts payable or receivable are
denominated in a foreign currency; or c. Ensure that the
exchange differences
(c) Otherwise acquires or arising from payment of
disposes of assets, or incurs or settles loans be recognized on the
liabilities denominated in a foreign settlement date and not
currency. upon loan revaluation at the
end of each quarter,
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Section 27. At each reporting date (a) pursuant to Section 32 of
Foreign currency monetary items shall the PPSAS 4.
be translated using the closing rate;
xxx”
Closing rate is defined in Section 10 of

the same Standards as the spot
exchange rate at the end of the
reporting period.
Section 32. Exchange differences

arising on the settlement of monetary
items or on translating monetary items
at rates different from those at which
they were translated on initial
recognition during the period or in
previous financial statements shall be
recognized in surplus or deficit in the
period in which they arise, except as
described in paragraph 37.”
17.3 The adjustment per JV No.

2016-09-003397 dated 30 September
2016 totaling P19,322,447.84 was
made to reconcile the Foreign Loans
Payable-ADB 1746-PHI per books and
per records of the Bureau of the
Treasury (BTr).
17.4 However, audit disclosed that

it was not supported with proper
reconciliation with the BTr and relevant
supporting documents to prove the
propriety of the adjustment.
17.5 Consequently, the related

Loss on Foreign Exchange upon loan
revaluation was understated by
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P623,033.52 .
17.6 Considering the foregoing, the

account Foreign Loans Payable-ADB
1746-PHI was understated by
P19,945,481.36 (P19.322 million plus
P.623 million) and the related Loss on
Foreign Exchange by P623,033.52.
17.7 Moreover, the exchange

differences as a result of payment
and/or settlement of foreign loans were
recognized in the books only upon loan
revaluation at the end of each quarter,
not at the time of loan
settlement/payment, as provided in
Section 32 of the PPSAS 4.
Special Reserve Fund
18. Unreconciled variance of P18.245 million existed between the book balance of the Investment in Special Reserve Fund and the balance confirmed by the Bureau of
the Treasury (BTr) thus, affecting the accuracy of the account balance of P399.353 million at year-end.
18.1 This is a reiteration of prior COA reiterated prior Management Finance Aug- Jun-18 Ongoing
year’s observation for the difference recommendation that informed that the Department 17
noted between the book balance of the Management immediately reconciliation
Fund and the amount confirmed by the reconcile the fund balance meeting with the BTr
BTr amounting to P17.186 million. recorded in its books as has not yet been
against the balance of scheduled, as well as
18.2 The Special Reserve Fund investment with the BTr and the explanation on
with the Bureau of the Treasury (BTr) is effect the corresponding the background for
intended as guarantee for the financial adjustment for the the unreconciled
obligations of MWSS during the difference noted amounting statements.
concession period which was to P18.245 million.
established in pursuance to Article 2.1
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of the Memorandum of Agreement
(MOA) between the Department of
Finance (DOF) and MWSS.
18.3 In previous Annual Audit

Reports, we recommended to reconcile
the fund balance with the BTr and effect
the necessary adjustments, however,
confirmation with the BTr of the year-
end balance of Investment in Special
Reserve Fund showed a variance of
P18.245 million against the book
balance as at year-end, which cast
doubt on the accuracy of the account
balance.
Other Liability Account
19. The reported year-end balance of the account Other Liability of P526.769 million was unreliable due to:
a. Inclusion of P14.085 million which cannot be ascertained due to unsubstantiated transactions and/or lack of supporting documents;
b. Unremitted salary deductions of MWSS employees totaling P4.876 million in payment of loans/dues to the respective MWSS Associations where the amounts
withheld are due; and
c. Improper accounting entries in recognizing and derecognizing Trust Liabilities in the books of accounts.
19.1 Our audit was guided by the COA recommended that Management Finance, Aug- Jun-18 Ongoing
following criteria: Management: commented that Property and 17
reconciliation of Legal
19.1.1 Section 3(4) of Presidential a. Submit copy/ies of account will be made Services
Decree No. 1445 defined trust funds as, Memorandum of and resolve the issue Department
Agreement/Trust Agreement within the year. With
“funds which have come officially into
and other supporting regard to the account
the possession of any agency of the documents of all trust of the MCMC
government or of a public officer as liabilities with outstanding amounting to
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trustee, agent, or administrator, or balance as of year-end; P2.340 million, the
which have been received for the same will be offset on
fulfillment of some obligation.” b. Ensure that the the amount due
recorded outstanding MCMC from their
19.1.2 Also, Section 4(6) of the same liabilities in the books collections of rent
pertain only to those claims and electricity
Decree requires that, “Claims against
which are supported with consumption by
government funds shall be supported complete documentation; canteen’s
with complete documentation.” concessionaires.
c. Analyze the
19.1.3 In recording transactions, accuracy and validity of the
Section 112 thereof, states that: outstanding balance of the
other liability and its various
“Each government agency shall record accounts such as but not
its financial transactions and operations limited to liabilities with
conformably with generally accepted various MWSS Associations
accounting principles and in accordance totaling P4.925 million as
well as the abnormal
with pertinent laws and regulations.” balance of P48,195.29;
19.2 As of 31 December 2016, the d. Record trust
balance of the account Other Liability liabilities that comply with
was P526.769 million the definition of trust funds
as provided under Section
19.3 Audit of the account revealed 3(4) of PD No. 1445; and
that:
e. Derecognize only
19.3.1. Trust liabilities/funds totaling trust liabilities received for
P14.085 million lacked supporting the Operational Expenses in
documents as required by COA Circular UATF and Salaries of Ipo
Watershed workers upon
No. 2012-001, the most basic of which
liquidation of funds to the
is the Memorandum of Agreement/Trust Concessionaires by using
Agreement to confirm the validity and the following entries:
propriety of the recorded liabilities.
i. Payment/grant of
19.3.2. Further analysis showed that one-time cash advance to
the AO
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the amounts of P2.549 million and
P3.170 million from MWCI and MWSI,
respectively, are the unexpended Advances to Special
Disbursing Officer
financial assistance to the affected
xxx
families within the 25-meter pipe
alignment of the Angat Water Utilization Cash in Bank – LCCA
and Aqueduct Improvement Project xxx
(AWUIAP) – Phase 2. The Notice to
Proceed was issued on 17 March 2010. ii. Upon liquidation of
However, starting July 2010, there were funds to the
Concessionaires
no further claims, hence the funds may
now be returned to the Concessionaires Other Payables xxx
upon proper liquidation and the
corresponding liabilities be Advances to Special
derecognized in the books. Disbursing Office xxx
19.3.3. The amount withheld from the

salaries of MWSS employees totaling f. For the amount due
P4,876,425.09 as of 31 December 2016 to MCMC totaling
P2,340,916.72, require it to
remained unremitted to the respective settle the issues raised in
MWSS Associations where the amounts Audit Finding No. E.1 before
withheld are due, contrary to sound remittance can be made.
accounting practice that what was
withheld should be remitted to the
concerned Association.
19.3.4. Trust liabilities with

Concessionaires totaling P15 million in
the form of receivables do not meet the
definition of trust funds as provided
under PD No. 1445, for which funds
received from trustor should have been
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officially transferred to the MWSS.
JEV No. 2009-05-003783 recognized a

receivable on intensive information and
education campaign for public
awareness and generation of public
appreciation on its development.
Other Receivables xxx
Other Payables xxx
The entry clearly shows that there was

no actual receipt of funds, but only a
set-up of receivable from the trustor.
This liability has an outstanding balance
of P10 million as of year-end.
19.3.5. Other payables/trust liabilities

totaling P7,664,746.71 representing
funds received from the
Concessionaires treated as cash
advances were derecognized when the
funds were drawn in the name of the
assigned Accountable Officers
(AOs)/Special Disbursing Officers
(SDOs) and not upon liquidation to the
Concessionaires.
The funds were intended for the

Operational Expenses in Umiray Angat
Transbasin Facility (UATF) and Salaries
of Ipo Watershed workers, and the cash
advances were drawn by Teodoro M.
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Alipio and Lilybeth A. Santos,
respectively.
Abnormal/Negative Balances
20. Abnormal/Negative balances in the Asset and Liability accounts totaling P14.059 million and P1.618 million, respectively, were not in accordance with Sections 111
and 112 of Presidential Decree (PD) No. 1445, thus, the net account balances of P14.057 million at year-end was doubtful.
20.1 This is a consolidation of COA recommended that Management Finance Aug- Dec- Ongoing
abnormal/negative balances noted in Management analyze and informed that they Department 17 18
prior year’s audit observations including determine the causes of the will hire a Contract of
but not limited to paragraphs B.1.19.e abnormal/negative Service personnel to
and B.3.1 of CY 2015 Annual Audit balances, and effect do the reconciliation
Report. necessary adjustments to and analysis of the
reflect the correct balances accounts with
20.2 Our audit was anchored on of the affected accounts. abnormal/negative
the following rules and regulations: balances.
20.2.1. Section 111(2) of PD No.

1145 provides that:
“The highest standards of honesty,

objectivity and consistency shall be
observed in the keeping of accounts to
safeguard against inaccurate or
misleading information.”
20.2.2. Also, in recording financial

transactions, Section 112 of the same
PD states that:
“Each government agency shall record

its financial transactions and operations
conformably with generally accepted
accounting principles and in accordance
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with pertinent laws and regulations.”
20.2.3. Sound accounting practice

dictates that the normal balance of
asset and expense accounts should be
debit; and the liabilities, equity and
income accounts should be credit.
20.3 Verification of the trial balance

as of December 31, 2016 and its
supporting Subsidiary Ledgers (SL)
disclosed abnormal/negative balances
in the asset and liabilities accounts
totaling P14.059 million and P1.618
million, respectively.
20.4 Audit also revealed that the

abnormal/negative balances resulted
from (a) over-remittance of the withheld
amount to various concerned
agencies/cooperatives and/or errors in
the computation of amount payables,
and (b)
misclassification/reclassification/adjustm
ent made on the accounts.
20.5 From the above table, the

abnormal/negative balances of some
accounts have been in existence since
2007 or almost 10 years now, while the
latest occurred in December 2016. It
showed that Management has not taken
any action to analyze and determine the
causes of abnormality.
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Other Prepaid Expenses
21. The account Other Prepaid Expenses-Expanded Withholding Tax (OPE-EWT) with an accumulated beginning balance of P15.339 million did not reconcile with the
remaining tax credits per CY 2015 Annual Income Tax Return amounting to P2.688 million, thereby showing a variance of P12.762 million, contrary to Section 2.57(B),
BIR Revenue Regulation 2-98.
21.1 This is a reiteration of a COA recommended that Management Finance Completed

previous audit observation that the Management verify and committed to comply Department
beginning balance of the OPE-EWT substantiate the tax credits with the audit
account per books did not reconcile with variance per BIR Form 1702 recommendation.
the remaining tax credit per Annual against the recorded book
Income Tax Return submitted to BIR. balance of the account
Other Prepaid Expense-
21.2 Analysis of the OPE-EWT EWT, and prepare the
account and the 2015 Annual Income necessary adjusting entry to
Tax Return filed disclosed a variance of correct the misapplication of
P12.762 million arrived at: creditable tax credit in the
books.
21.3 Section 2.57(B) of the BIR

Revenue Regulation 2-98 provides that
“Under the creditable withholding tax

system, taxes withheld on certain
income payments are intended to equal
or at least approximate the tax due of
the payee on said income. The income
recipient is still required to file an
income tax return, as prescribed in
Section 51 and Section 52 of the NIRC,
as amended, to report the income
and/or pay the difference between the
tax withheld and the tax due on the
income. Taxes withheld on income
payments covered by the expanded
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withholding tax (referred to in Section
2.57.2 of these regulations) and
compensation income (referred to in
Section 2.78 also of these regulations)
are creditable in nature.”
21.4 Verification from the MWSS

Accounting Department revealed that
the discrepancy noted pertained to tax
credits already applied in previous
years, but not recorded in the books
under the Other Prepaid Expense –
EWT.
21.5 Also, the misclassified

creditable withholding tax applied
against Value-Added Tax payable in CY
2015 amounting to P110,090.78
remained unadjusted in the books, as
discussed below.
a. Section 2.57.2 of RR No. 2-98

(as amended by Section 2 of RR No.
14-2002) is explicit on the application of
the Creditable Withholding Tax
(Expanded Withholding Tax on Rentals-
5%); in which, the amount of creditable
tax withheld shall be allowed as a tax
credit against the income tax liability of
the payee and not against Value-Added
Tax payable. Instead, the creditable
Withholding VAT (5%) for Government
Money Payments (Other Prepaid
Expenses – Output VAT (185-02) can
be used against Output VAT payment.
b. In CY 2015, the recording of

VAT remittances showed that the
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allowable tax credit against Output tax
was credited to OPE-EWT instead of
OPE-Output VAT. Management
corrected the previous entries and
made the necessary adjustment in the
same year, but the amount of
P110,090.78 remain unadjusted, to
date. The misapplication of creditable
withholding taxes overstated OPE-
Output VAT and understated the OPE-
EWT, both by P110,090.78.
Rent Income
23. The accuracy and validity of reported income for CY 2016 in the amount of P95.679 million was found doubtful due to:
a. Net understatement of Rent Income of P1.594 million as a result of improper recognition of income, contrary to paragraph 1 of PPSAS 1 and Philippine
Application Guidance (PAG);
b. Non-imposition of rent escalation of 10 per cent and adjustment based on Consumer Price Index (CPI) changes as provided in the Contracts of five lessees,
resulting in an estimated P7.195 million loss in income; and
c. Non-renewal of the expired Contract of Lease of five tenants.
23.1 We used the following audit COA recommended that Management Finance, Aug- Mar- Ongoing
criteria in the herein audit observations: Management: submitted the Property 17 18
following comments: Management
a. Paragraph 1 of the Philippine a. Recognize income ang Legal
Public Sector Accounting Standards when earned in accordance a. On Services
(PPSAS) 1 states that: with accrual basis of unadjusted rental Department
accounting as provided rate escalation of the
“This Standard should be applied in the under paragraph 1 of following lessee;
presentation of all general purpose PPSAS 1 and PAG 1, and
financial statements prepared and prepare the necessary i. MWCI, the
presented under the accrual basis of adjustments for errors noted PMD, Finance
accounting in accordance with in the recognition of income; Department and
Philippine Public Sector Accounting MWCI are in
Standards.” b. Enforce the reconciliation of the
provisions/stipulations of the 3,708.05 sq. m.
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b. Philippine Application Contract of Lease as property. Result
Guidance (PAG) 1, providing regards the thereof will cause the
supplementary guidance on the proper escalation/adjustment of preparation of a
implementation of PPSAS 1 states: rental rate to collect the Lease Contract to
exact income; and include all properties
“Generally, the Philippine Public Sector leased out to MWCI;
Accounting Standards is on accrual c. Execute new
basis except for transactions otherwise contracts on expired lease ii. For
accounted for as required by law.” agreements to guaranty its WASSECO, the
(emphasis ours) enforceability. lessee requested that
the rental rate
c. Accrual Basis as defined escalation be waived
under paragraph 7 of PPSAS, is a basis considering that the
of accounting under which transactions WASSECO members
and other events are recognized when are all former MWSS
they occur (and not only when cash or employees. This
its equivalent is received or paid). issue is subject to
Therefore, the transactions and events Board approval;
are recorded in the accounting records
and recognized in the financial iii. For NLRC,
statements of the periods to which they the annual escalation
relate. The elements recognized under will start in May 2017
accrual accounting are assets, liabilities, which will be
net assets/equity, revenue and adjusted as soon as
expenses.” CPI for May 2017 is
available;
d. Section 60 of PD 1445 on
Audit of revenue accounts, provides that iv. For Manuel
“the examination and audit of revenue Quizon, the leased
accounts shall be performed with a view property will be
to ascertaining that all earned revenues vacated on or before
have been duly recorded; xxx.” the end of May 2017
as the same will be
e. Rental on leased properties is used by the new
one of the sources of funds of MWSS. Board members; and
The leased properties of the MWSS
include among others, the v. For LWUA,
Administration and Engineering execution of new
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Buildings and Right-of-Ways (ROWs) lease contract will be
used by private individuals being prepared as soon as
charged with reasonable fees. agreement between
two parties are
23.2 Verification of the rent income settled.
account disclosed that it was
understated by P1,594,183.49 and the b. For OGCC,
reported income was not compliant with there are pending
the requirement on fair presentation as issues on rental
described below: collection tax liability
which are subject of
23.3 Further review of the discussion and
contracts revealed that the rate reconciliation.
adjustment or escalation stipulated was Preparation of
not effected, particularly on the following Agreement will ensue
lessees. Discussion follows. thereafter;
23.3.1 MWCI - c. For ROW,

a. MWCI is the East Zone the Legal and
Concessionaire that leases various Property
MWSS property including some areas in Departments were
the MWSS Administration Building instructed to prepare
which Contract of Lease has expired on binding contracts and
October 29, 2011 thus, the monthly adjustment of rental
rental rate for the leased premises rate as needed to
remained at P1,522,673.65 (exclusive support the billing of
of VAT) since 2012. the ROW leased
properties;
b. Also, rental rate for the lease
of an area of 36.4 sq.m. located at the d Management will
basement level of the MWSS recognize income
Administration Building has not been when earned in
increased/escalated despite the accordance with the
stipulation in paragraph 4.A of the accrual basis of
Contract which expressly states: accounting as
provided under
“xxx. The rental will be escalated paragraph 1 of the
annually by ten per cent (10%) starting Philippine Public
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on the second year of the Term of this Section Accounting
Contract.” Standards (PPSAS)
and Philippine
c. Because of the failure to Application Guidance
impose increase in the rental rate, (PAG); and
MWSS was deprived of an additional
income of P7,130,705.88 exclusive of e. The
VAT, details as follows: mandate of the new
Administrator is to
d. Further, the Contract of Lease update and adjust the
for the living quarters situated at Balara rental rates of all
Filters Compound, Pansol, Balara, Lessees and execute
Quezon City remained not renewed and new contracts of
collection of rental fee on said leased lease of all those
property only amounted to P891,355.98 lessees whose
for the year. The lease pertaining to the contracts have
living quarters is still subject to already expired.
reconciliation per inquiry from the
Finance Department.
23.3.2 Water and Sewer Services

Cooperative (WASSECO) -
a. The lease contract of the

former carpentry and foundry shop,
situated at P. Mack St., Balara Filters
Compound by the Water and Sewer
Services Cooperative started April 26,
2005 until April 25, 2006. The contract
stipulated an initial monthly rental rate
of P4,166.67 subject to annual
escalation of 10 per cent in case of
renewal/extension of the contract. Audit
showed that an estimated total income
of P138,333.04 could have been earned
if the rental rate was escalated, but
records revealed that only an income of
P101,247.46 was recognized for the
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year or a difference of P37,085.58.
b. There was a discrepancy

between the base rental used in the
Statement of Account (SOA) for
WASSECO and the set-up of receivable
and income in the books pertaining to
these accounts, since per SOA the 10
per cent escalation was included, while
per books the same was unrecognized.
23.3.3 Northrail Luzon Railways
Corporation -
Rental rate was not adjusted despite the

stipulation in the Contract of monthly
rate adjustment based on the Consumer
Price Index between May of the
weighting year and May of the prior year
as published by National Statistics
Office. Income earned for the year
should have been P1,870,874.40
instead of P1,851,642.00 or an
understatement of P19,232.40.
23.3.4 Manuel Quizon -
Mr. Quizon leased the Balara

Guesthouse located at Carriedo Street,
Old Balara, Quezon City since April
2011 with one (1) year Contract ending
on March 31, 2012. In his letter dated
August 14, 2015, Mr. Quizon requested
an extension of his lease for another
year with a reasonable rate escalation
from the previous monthly contract rate
of P6,696.43 (exclusive of VAT)
however, the escalation was not
effected by Management and continued
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to bill and collect the P7,500.00
(inclusive of VAT) per month. If the rate
was escalated by 10 per cent, a monthly
rate of P7,366.07 could have been
recognized for the year 2016 as shown
below:
23.4 In addition, the Local Water

Utilities Administration (LWUA) monthly
rental fees of P14,652.24 and
P18,025.85 have not been adjusted
since CY 2007 (past available record
per eNGAS). Section 2 of the two
Contracts of Lease executed by and
between MWSS and LWUA covering
two areas consisting of 4,097 sq.m and
5,947.00 sq.m, provides that the
monthly rental is subject to adjustment
every two years based on the value of
the peso on the date of execution of the
contracts however, no adjustment was
made since 2007. Moreover, the two
Contracts were dated January 1, 2000
and July 1, 1979, respectively.
23.5 New contracts were not

executed by MWSS and its five tenants
for 1 to 10 years after expiration and
they continued to occupy the MWSS
premises. Details are as follows:
23.6 Furthermore, contracts with

the following tenants have already
expired in CY 2016:
23.7 Also, income from lease of

MWSS Right-of-Ways (ROWs) of
P2,889,135.15 for CY 2016 was
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mostly billed and collected based on
“reasonable compensation” due to
absence of binding contracts and
income was recognized only when
collected.
23.8 Further, execution of a lease

contract is important, provided
stipulations, clauses, terms and
conditions are not contrary to law,
morals, good customs, public order or
public policy, and are established in
writing and binds the contracting
parties. Without a lease contract, there
is no document binding between the
agency and occupants/lessees of the
latter’s property. Lease contracts are
considered Revenue Generating
Contracts based on Section 531 of
GAAM Vol. 1.
“A revenue generating contract is an

agreement is an agreement whereby
the government agency grants to a
lessee, contractor, concessionaire the
right to manage and operate the
revenue-generating project or facility of
the former for a fixed fee, such as but
not limited to, buildings, market and
market stalls and spaces,
slaughterhouses, land, parking lots,
porterage services, stalls and
advertising spaces, port facilities, cargo
handling, warehouse operations,
stevedoring, transport service and the
like, Except for the rental or lease
market stalls and spaces, no such
contracts shall be awarded for the first
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time or renewed and entered into
without required public bidding. Such
public bidding shall be in accordance
with pertinent laws, rules and
regulations.”
Investment in Stocks
24. The validity and accuracy of the account Investment in Stocks totaling P2.524 million was unreliable due to inclusion of stocks totaling to P2.012 million or 79.80 per
cent that cannot be validated or without complete/original copies of stock certificates.
24.1 Our audit was anchored on COA recommended that Management will Finance Aug- Mar- Ongoing
Section 111 of Presidential Decree No. Management: abide with the COA Department 17 18
1445 which provides that: recommendation and
a. Immediately will also call the
“(1) The accounts of an agency shall be produce the stock attention of the PLDT
kept in such detail as is necessary to certificates with PLDT and and MERALCO on
meet the needs of the agency and at MERALCO pertaining to the the copies of stocks
the same time be adequate to furnish variance noted during certificates needed to
the information needed by fiscal or inspection totaling be produced.
control agencies of the government. P1.544 million, including the
original copies of the stock
(2) The highest standards of honesty, certificates for its investment
objectivity and consistency shall be in stocks with MERALCO
observed in the keeping of accounts to amounting to P0.468 million;
safeguard against inaccurate or and
b. Reconcile the
24.2 Audit of the year-end balance outstanding balance of
of Investment in Stocks account totaling investment in stocks with
P2.524 million revealed the following: PLDT (account 192-01) for
the variance noted per
24.2.1 On 11 March 2016, confirmation amounting to
inspection/inventory was conducted on P0.372 million and closely
all stock certificates owned by MWSS communicate with PLDT
from Philippine Long Distance and MERALCO to establish
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Telephone Company (PLDT) and the correct year-end
Manila Electric Company (MERALCO) balance of investment in
under the custody of Treasury Office. stocks.
The result of inspection/inventory

revealed a variance of P2.012 million
which were not properly documented,
as shown below:
24.2.2 Of the Investment in Stocks-

MERALCO, the amount of P468,540.00
was evidenced merely by photocopies
of stock certificates.
24.2.3 The variance of P1.544 million

(P2.013 million less P.469 million) were
not supported by any stock certificates
which casts doubt on the existence and
accuracy of the year-end balance of the
account.
24.2.4 Further, the shares of PLDT

and MERALCO were long outstanding
since the certificates were issued from
1974-1986 and 1979-1999,
respectively.
24.3 Confirmation letters dated 17

January 2017 were sent to PLDT and
MERALCO requesting for the
outstanding balance of MWSS
investment in stocks in their books,
including the number of shares
outstanding and par value per share as
of 31 December 2016.
Results are as follows:
24.3.1 Reply from PLDT disclosed

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that MWSS has no stock holdings as of
31 December 2016, however, it has a
recorded investment in stocks per
books amounting to P0.372 million.
24.3.2 As regards MERALCO, its

confirmation reply is yet to be received.
Investment in Stocks
25. The validity and accuracy of the account Investment in Stocks totaling P2.524 million was unreliable due to inclusion of stocks totaling to P2.012 million or 79.80
per cent that cannot be validated or without complete/original copies of stock certificates.
25.1 Our audit was anchored on COA recommended that Management will Finance Aug- Mar- Ongoing
Section 111 of Presidential Decree No. Management: abide with the COA Department 17 18
1445 which provides that: recommendation and
a. Immediately will also call on the
“(1) The accounts of an agency shall be produce the stock attention of the PLDT
kept in such detail as is necessary to certificates with PLDT and and MERALCO on
meet the needs of the agency and at MERALCO pertaining to the the copies of stocks
the same time be adequate to furnish variance noted during certificates needed to
the information needed by fiscal or inspection totaling be produced.
control agencies of the government. P1.544 million, including the
original copies of the stock
(2) The highest standards of honesty, certificates for its investment
objectivity and consistency shall be in stocks with MERALCO
observed in the keeping of accounts to amounting to P0.468 million;
safeguard against inaccurate or and
b. Reconcile the
25.2 Audit of the year-end balance outstanding balance of
of Investment in Stocks account totaling investment in stocks with
P2.524 million revealed the following: PLDT (account 192-01) for
the variance noted per
25.2.1 On 11 March 2016, confirmation amounting to
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inspection/inventory was conducted on P0.372 million and closely
all stock certificates owned by MWSS communicate with PLDT
from Philippine Long Distance and MERALCO to establish
Telephone Company (PLDT) and the correct year-end
Manila Electric Company (MERALCO) balance of investment in
under the custody of Treasury Office. stocks.
The result of inspection/inventory

revealed a variance of P2.012 million
which were not properly documented,
as shown below:
25.2.2 Of the Investment in Stocks-

MERALCO, the amount of P468,540.00
was evidenced merely by photocopies
of stock certificates.
25.2.3 The variance of P1.544 million

(P2.013 million less P.469 million) were
not supported by any stock certificates
which casts doubt on the existence and
accuracy of the year-end balance of the
account.
25.2.4 Further, the shares of PLDT

and MERALCO were long outstanding
since the certificates were issued from
1974-1986 and 1979-1999,
respectively.
25.3 Confirmation letters dated 17

January 2017 were sent to PLDT and
MERALCO requesting for the
outstanding balance of MWSS
investment in stocks in their books,
including the number of shares
outstanding and par value per share as
of 31 December 2016.
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Results are as follows:
25.3.1 Reply from PLDT disclosed

that MWSS has no stock holdings as of
31 December 2016, however, it has a
recorded investment in stocks per
books amounting to P0.372 million.
25.3.2 As regards MERALCO, its

confirmation reply is yet to be received.
Due to Bureau of Internal Revenue (BIR)
26. Deficiencies were noted in the balance of the account Due to BIR as of December 31, 2016, to wit:
a. No provision for Tax Refunds Payable and recognition of Other Prepaid Expense amounting to P459,643.26 were made at year-end
pertaining to the over withheld tax on employee compensation for the period January to November 2016;
b. The adjusted year-end balance for CY 2016, after taking into account the remittance for December 2016 tax collections, showed unremitted
balance of P200,739.85; and
c. Three sub-accounts comprising Due to BIR account showed negative balances totaling P425,644.88 as of year-end.
26.1 This is a reiteration of COA reiterated their Management Finance Completed

previous year’s audit observation recommendations that submitted the Department
relative to the accounting of various tax Management: following comments:
collections and remittance to the BIR.
a. Determine the Tax a. Henceforth,
26.2 Our audit was guided by the Refunds Payable due to its it will abide with the
PPSAS, COA Circular No. 2015-010 re: employees and Other audit
Adoption of the Revised Chart of Prepaid Expenses for the recommendations;
Accounts (RCA) for Government tax credits and effect the
Corporations and National Internal necessary adjusting entries b. The
Revenue Code of the Philippines, as at year-end; and negative balances of
presented below. Due to BIR has been
b. Review and analyze reviewed and
26.2.1 The Revised Chart of Account the negative balances of the analyzed and found
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states the following: various subsidiary ledgers that there were
of Due to BIR and account indeed unremitted tax
a. the account Due to BIR is for possible unremitted tax on compensation;
used to recognize taxes withheld from collections and remit the and
officers/employees and other entities same to BIR if any.
other than Value Added Tax Payable c. However,
and Income Tax Payable; remittances
corresponding to the
b. the account Deferred Credits year said taxes were
– Output Tax is used to recognize the withheld has already
value added tax on the sale of ended and has
goods/property and services; and zeroed out the tax
due for the said year.
c. the account Tax Refunds The unremitted tax
Payable is used to recognize amount withheld would
refundable to taxpayers for excess therefore be refunded
amount paid/withheld. to the personnel
concerned.
26.2.2 Section 79 (H) of the NIRC
provides:
“(H) Year-End Adjustment. - On or

before the end of the calendar year but
prior to the payment of the
compensation for the last payroll period,
the employer shall determine the tax
due from each employee on taxable
compensation income for the entire
taxable year in accordance with Section
24(A). The difference between the tax
due from the employee for the entire
year and the sum of taxes withheld from
January to November shall either be
withheld from his salary in December of
the current calendar year or refunded to
the employee not later than January 25
of the succeeding year.”
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26.2.3 Section 251 of the NIRC also
provides:
“SEC. 251. Failure of a Withholding

Agent to Collect and Remit Tax. - Any
person required to withhold, account for,
and remit any tax imposed by this Code
or who willfully fails to withhold such tax,
or account for and remit such tax, or
aids or abets in any manner to evade
any such tax or the payment thereof,
shall, in addition to other penalties
provided for under this Chapter, be
liable upon conviction to a penalty equal
to the total amount of the tax not
withheld, or not accounted for and
remitted”.
26.3 Audit of CY 2016 transactions

disclosed that Management did not
recognize Tax Refunds Payable and
Other Prepaid Expense as of year-end
aggregating P459,643.26.
26.4 Analysis of the JEVs revealed

that Management temporarily debited
on January 2017 the account Due to
BIR upon refund of excess tax withheld
from employee for January to
November 2016. On February 2017,
upon remittance of January 2017 tax
withheld, the amount debited pertaining
to the tax refund was credited back to
offset from the taxes remitted on
February 2017. The current practice
pro-forma entries are presented below:
26.4.1 To record the withholding of

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taxes from compensation on January
2017
Salaries and Wages xxx

Cash xxx
Due to BIR xxx
26.4.2 To record payment of tax

refund for CY 2016 on January 2017
Due to BIR xxx

Cash xxx
26.4.3 To record the remittance on

February 2017 and the claim for tax
credits equal to the amount of taxes
refunded to employees applied against
the remittance of taxes withheld on
January 2017
Due to BIR (taxes withheld for January

2016) xxx
Cash (amount payable)
xxx
Due to BIR (equal to tax refunded)
xxx
26.4.4 Although the accounts will be

properly presented in February 2017
posting, this accounting practice
misrepresents the amount of liability as
of 31 December 2016 due to
the non-recognition of Tax Refunds
Payable to various employees and non-
recognition of Other Prepaid Expenses
on the tax credit to be applied on the 1st
remittance of taxes withheld in
January 2017.
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26.5 As of December 31, 2016, the

account Due to BIR showed the
following balances:
26.6 Analysis of subsequent

transactions disclosed that after
considering the tax remittance in
January 2017 pertaining to the
December 2016 tax withheld, the Due to
BIR showed an unremitted amount of
P200,739.85 as of December 31, 2016.
Details are as follows:
26.7 It was also observed that the

three sub-accounts showed negative
balances totaling P425,644.88.
Revenue sharing from operations of La Mesa Ecopark/La Mesa Resort Zone
27. The forty per cent share of the MWSS in the net income from operations of the La Mesa Ecopark/La Mesa Resort Zone (LMRZ), as stated in Section 11 of the
Memorandum of Agreement signed by and among MWSS, ABS-CBN Foundation Inc. and the Local Government of Quezon City, remained unenforced/uncollected
as of CY 2016.
27.1 This is a reiteration of COA reiterated their Management will Property Aug- Mar- Ongoing Administrator
previous years’ audit finding. previous audit study and assess the Management 17 18 Velasco spoke
recommendations that issue on income and Legal with Ms. Regina
27.2 Section 11 of the Agreement Management: Services Paz Lopez, Head
sharing arising from
between and among Metropolitan Department of the AFI,
Waterworks and Sewerage System a. Require the AFI to the operations of La regarding this
(MWSS), ABS-CBN Foundation Inc. comply with Section 11 of Mesa Ecopark issue and
(AFI) and the Local Government of the MOA specifically the requested the AFI
Quezon City (LGQC) expressly states: submission of the Annual to remit to MWSS
Financial Reports to all income due, if
“AFI shall share with MWSS and the determine the MWSS any
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LGQC the net income after tax derived 40 per cent share in income
annually from its LMRZ operations on a from operations in the
30%-40%-30% basis, respectively, LMRZ;
subject to Section 6 hereof. The
Financial Report shall be prepared and b. Settle the issue on
submitted by AFI to the 1LMEB for the the 15 per cent
LMRZ’s initial operation ending management fee and capital
June 30, 2005. Thereafter, an Annual expenditures deducted by
Financial Report shall be prepared and AFI from the revenue in
submitted by AFI to the 1LMEB and the determining the net income;
net income, if any, shall be distributed
among the parties accordingly.” c. Assess, bill and
collect from AFI the 40 per
1LMEB is an abbreviation for La Mesa cent share of income of
Executive Board MWSS from the operation of
LMRZ; and
27.3 Verification revealed that the
40 per cent share in the net income Secure a post facto
from operations of the La Mesa approval of the MOA by the
Ecopark/ La Mesa Resort Zone has not Board of Trustees as
been recognized/collected and the post- required in Section 22
facto approval/ratification of the which provides that the
Memorandum of Agreement by the Agreement shall become
Board of Trustees has not been secured effective after the same
and other deficiencies noted in the shall have been signed by
contract have not been acted upon until the parties, approved by the
now. Moreover, the required Financial proper authorities, reviewed
Reports were not submitted to date, in by the Office of the
order to determine the income sharing Government Corporate
of the parties. Counsel, and ratified by the
LGQC Sanggunian.
27.4 In CY 2013, Management
created an Audit Team to examine the
financial documents of Bantay
Kalikasan (BK)/ABS-CBN Foundation
Inc. and at present, no conclusion or
action from the result of the Audit
Team’s findings has been made by
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Management.
Based on the observations by the

MWSS Audit Team, the documents for
audit pertaining to CYs 2004 to 2011
were not available due to the following:
27.4.1 Documents pertaining to CYs

2004 to 2009 were submerged in murky
water/mud since the AFI Treasury
Department was flooded brought about
by typhoon “Ondoy” in September 2009
as evidenced by an affidavit executed
by Ms. Melody Marasigan, Head of the
Treasury Department, ABS-CBN
Foundation, Inc.
27.4.2 The CYs 2010 to 2011

documents pertaining to
revenues/receipts were not available in
spite of the presentation of the Cash
Receipts files since it is composed only
of disbursements/expenses. The
disbursement file was disorganized
inasmuch as it included files of other
AFI subsidiaries.
27.5 On the foregoing observations

by the MWSS Audit team, the AFI was
not compliant with Section 12 of the
MOA which states that AFI should
maintain a book or chart of accounts
solely for the project.
27.6 Revenue sharing was also

presented by the MWSS Audit Team
covering the period CYs 2004 to 2011
as shown in the table below:
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27.7 As can be gleaned on the
above table, MWSS could have earned
and collected the amount of P19.18
million as its 40 per cent share from net
income on LMRZ operations for CYs
2004 to 2011, if both Management Fee
of 15 per cent and CAPEX were not
considered in the computation of the net
income or P7.42 million if Management
Fee was considered. Further, since CY
2005, no distribution in the share from
the net income was done by AFI.
27.8 Furthermore, the MWSS Audit

Team letter/report also mentioned that a
bank account is being maintained by the
AFI as evidenced by a photocopy of a
BDO passbook with Savings Account
No. 1270847749 with a balance of
P7,876,536.22 as of June 30, 2009
under the account name of ABS-CBN
Foundation, which is not in accordance
with Section 6 of the MOA which states
that:
“All funds generated from the operation

of the LMRZ shall be deposited under
Special Account (herein referred to as
ETF) to be opened in the name of
MWSS, AFI and LGQC.”
27.9 To date, Management has not

taken any concrete
action to collect its
revenue share equivalent
to 40 per cent of the net
income from operations
of the La Mesa Ecopark.
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B. Compliance Audit – Corporate Office
Unremitted collections from the Concessionaires for the payment of the loan JBIC/OECF
1. The accumulated P1.914 billion collections from the two Concessionaires for the payment of the JBIC/OECF loan remained unremitted in spite of the continuous
demand by the Bureau of the Treasury (BTr) to settle the payable, due to the unresolved issue on whether the loan should be treated as a grant/equity from the
National Government or remain as a loan since the Concessionaires continued the project
1.1 The Japan Bank International COA reiterated prior year’s Management insists Finance Aug- Mar- Ongoing
Cooperation/Overseas Economic recommendation that that MWSS shall hold Department 17 18
Cooperation Fund (JBIC/OECF), Management immediately in abeyance the
intended for the Angat Water Supply remit to the Bureau of the remittances to the
Optimization Project (AWSOP), under Treasury the amount BTr related to the
the Loan Agreement No. PH-110 was collected from the loan pending the
entered between the OECF and the Concessionaires as necessary
Government of the Republic of the payment for the JBIC/OECF documentation to
Philippines on 09 February 1990. Based loan. attest the fact that the
on the loan agreement, the Government ¥6.593 billion should
of the Philippines was identified as the have been taken up
“Borrower” of the loan and the MWSS as equity,
as the “Executing Agency” to implement considering that the
the project. Authorized Capital
Stock of P8 billion
1.2 In 1997, MWSS was per MWSS Charter to
privatized, thus the Concessionaires, be issued by the
MWCI and MWSI, continued the project National Government
and the loan is to be paid by the has not yet been fully
Concessionaires as provided under paid. Of the P8
Section 6.4 of the Concession billion, only P6.095
Agreement: billion has been
issued with unpaid
“a) Not later than 14 days prior to the subscription of
date on which any scheduled payment P1.904 billion.
of principal, interest, fees or other
amount is due under a MWSS loan, 1.2 As our
MWSS shall notify the Concessionaire rejoinder,
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in writing of the total amount due on that Management should
payment date and of the “Peso set a definite period
equivalent” calculated at the then to locate the
prevailing exchange rate. Not later than necessary
one business day prior to each such documents to prove
payment date, the Concessionaire shall that the ¥6.593 billion
remit to such account as MWSS shall should have been
instruct an amount, in pesos, exclusive taken up as equity
of any penalties, or default, interest considering that this
charges not attributable to a later observation has been
payment of the Concession fee by the reiterated since
Concessionaire.” CY2012. However,
as informed earlier,
1.3 Total collections made by Management should
MWSS, both for principal and interest make representations
on the JBIC/OECF loan, from the two with the BTr at the
Concessionaires for the period CY 2006 earliest possible time
to CY 2016 accumulated to to settle the unpaid
P1,913,648,338.37, inclusive of the loan with an
P300,111,431.70 collected in CY 2016. outstanding balance
These collections remained unremitted per BTr records of
as of 31 December 2016 to the Bureau only P200 million.
of the Treasury (BTr). Management
explained that there is an unresolved
issue on whether the loan should be
treated as a grant/equity from the
National Government or remain as a
loan since the Concessionaires
continued the project.
1.4 However, thru a letter dated

April 14, 2014, the BTr has already
informed MWSS that of the total loan of
¥6,593,113,021.00, only the amount of
¥416,046,615.00 or Php106,072,026.00
represents equity of the government
and there was no document that would
show that the loan is to be treated as a
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grant or subsidy of the government. In
the Agency Action Plan submitted by
Management, it was mentioned that it
shall continue to reconcile its records
with the BTr.
1.5 Moreover, in the BTr’s latest

letter dated 20 February 2017
regarding MWSS’ account under JICA
PH-110, the accumulated amount due
is already P2,887,378,951.58 as of 31
December 2016 net of the repayment
made in April and September 2005 in
the amount of P200,000,000.00 and
P111,322,049.07, respectively or a total
of P311,322,049.07. The BTr again
requested MWSS to make the
necessary arrangement and/or facilitate
other mode of settlement.
Assessment of the Bureau of Internal Revenue (BIR) on Tax deficiencies
2. Tax deficiency for taxable year 2013 totaling P329.210 million inclusive of interest charges of P117.337 million was assessed by the Bureau of Internal Revenue (BIR)
due to non-filing of the required returns and non-payment of the corresponding tax liability pursuant to Section 255 of the National Internal Revenue Code in relation
to Section 250 of the same Code as amended by Republic Act 8424.
Moreover, the Concessionaires have an accumulated deficit of P392,248 million, on the payment of Concession Fee – Corporate Operating Budget for Taxable Years
2013 to 2016 due to non-inclusion of VAT in the computation of concession fee.
2.1 On 18 November 2016, the COA recommended that Management Finance Aug- Mar- Ongoing
Formal Letter of Demand on Final Management: informed that on 25 Department 17 18
Assessment Notice on Deficiency Taxes April 2017 the BIR
for CY 2013 of the BIR was received by a. Follow up the denied their request
the MWSS which mentioned that “Upon status of the MWSS letter and issued the Final
privatization, MWSS loses its exemption dated 20 December 2016 to Decision on Disputed
from taxes as indicated in its charter. the BIR Commissioner, Assessment. Hence,
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xxx. Upon privatization of MWSS, it requesting cancellation of an Appeal was filed
becomes a regular GOCC, subject to the Formal Letter of with the Court of Tax
income tax. MWSS, as a government- Demand on Final Appeal on May 25,
owned and controlled corporation Assessment Notice on 2016.
(GOCC), is not among the list of Deficiency Taxes for year
GOCC’s exempted from the payment of 2013 to avoid accumulation As a rejoinder,
corporate income tax, hence subject to of interest charges; and Management should
income tax per Section 27 (C) of the copy furnish this
Tax Code, as amended.” Office the appeal to
b. Inform the be filed before the
2.2 Likewise, “Twenty per cent Concessionaires of the BIR Court of Tax Appeals
(20%) interest per annum has been assessment pertaining to and all succeeding
imposed pursuant to Section 249 (B) of the 12 per cent VAT and actions thereof.
the National Internal Revenue Code due collect from the
to the failure to pay the tax within the Concessionaires the However, with regard
time prescribed by law for its payment.” P392.248 million that to par. 1.3, items III
represents the deficiency on to V, final resolutions
2.3 The BIR’s investigation report concession fee – COB. of the BIR should be
on MWSS for taxable year 2013 secured.
revealed tax deficiency of
P211,871,951.29 and interest charges
of P117,337,811.91 or a total tax
deficiency of P329,209,763.20 per final
letter of demand, with details shown
below:
2.4 The BIR Formal Letter of

Demand showed an accumulated
interest charges as follows:
2.5 On 20 December 2016, the

MWSS requested from the
Commissioner of the BIR that the
assessment for tax deficiencies be
cancelled and the case be considered
closed and terminated since the
concession fees received by MWSS are
excluded from gross income, pursuant
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to Section 32(B)(7)(b) of the National
Internal Revenue Code.
2.6 To date, no reply was

received by MWSS from the BIR
concerning the matter.
2.7 As regards accumulated

deficit of P392.248 million, the BIR in its
Formal Letter of Demand on Final
Assessment Notice on Deficiency Taxes
for CY 2013 cited that “xxx. The
adjustment is likewise subject to Value-
Added Tax pursuant to Section 108 of
the Tax Code, as amended”. (Emphasis
Supplied)
2.8 Examination of the items

included in the assessment revealed
that the Concession Fee-COB was also
included in the computation of Output
tax (VAT) amounting to
P110,030,144.46, as shown below:
2.9 On the basis of the above, we

audited the payment of COB by the
Concessionaires from CYs 2013 to
2016 and arrived at an accumulated
deficit of P382,316,700.21 representing
the 12 per cent output tax, to wit:
2.10 Considering the foregoing, the

aggregate deficit of P392,247,759.22
should be collected from the
Concessionaires and the amount
pertaining to the output VAT should be
remitted to the BIR.
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Unremitted Dividends due to the NG
3. Dividends due to the National Government for CY 2015 totaling P209.480 million were not remitted to the Bureau of the Treasury pursuant to Sections 5(a) and 6(a) of
the Revised Implementing Rules and Regulations of Republic Act No. 7656 (2016).
3.1 The Revised Implementing 3.6 We recommended 3.7 Finance Aug- Mar- Ongoing
Rules and Regulations of Republic Act that Management Manageme Department 17 18
No. 7656 dated 26 January 2016, immediately remit to the nt commented that
requires Government-Owned and Bureau of the Treasury the they have informed
Controlled Corporations to declare and Dividends still due to the the DOF that
remit dividends, under certain National Government payments of
conditions, to the National Government amounting to P209.480 dividends will be put
(NG) in order to raise additional million pursuant to RIRR of on hold pending reply
revenues for the latter. RA No. 7656 (2016). of the latter to their
letter request dated 4
Sections 5(a) and 6(a) thereof provides July 2016 for the
that: recomputation and
redetermination of
”Section 5. Dividends MWSS Corporate
Dividends for CY
a. xxx, all GOCCs covered by these 2015.
Rules, regardless of shareholdings,
shall annually declare and remit 3.8 Pending
Dividends directly to the National DOF approval on the
Government in the name of the said request, it is but
Treasurer of the Philippines in proper for the
accordance with the following Management to
guidelines: contribute to the
national coffers
On or before 15 May of each year, at through payment of
least fifty per cent (50%) of their Net dividends.
Earnings, as Cash, Stock and/or
Property Dividends to the national
Government. xxx
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Section 6. Schedule of Remittance
a. All GOCCs shall declare and remit to

the Bureau of the Treasury (BTr) in the
name of the Treasurer of the Philippines
the Dividends due for a given Dividend
Year subject to Section 5(a) of these
Rules. xxx”
3.2 As at year-end, the account

Dividends Payable showed an
outstanding balance of
P212,089,380.94 which, upon
verification, represents the unremitted
dividends due to the NG pertaining to
CY 2015.
3.3 Contrary to the above-cited

provisions of RIRR of RA No. 7656, the
dividends due to the NG has not been
fully remitted by the MWSS to the BTr
on or before 15 May 2016.
3.4 Likewise, it is worth

mentioning that the 50 per cent
dividend rate was applied to the Net
Earnings/Income per Statement of
Comprehensive Income instead of per
Annual Income Tax Return for the
dividend year, as redefined in the RIRR
of RA No. 7656:
“Net Earnings shall include:
i. Income subject to income tax,

as provided in the Annual Income Tax
Return, net of tax;
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ii. Income subject to final tax, as
provided in the Annual Income Tax
Return Schedule on Supplemental
Information, net of tax; and
iii. Income exempt from tax, as

provided in the Annual Income Tax
Return Schedule on Gross
Income/Receipts Exempt from Income
Tax, net of tax.”.
3.5 Per MWSS Annual Income

Tax Return for the year ended 2015, the
Net Taxable Income/Net Income
amounted to P718,961.223, hence, the
dividends payable to the NG for the
year 2015 should be P359,480,611.50
and that the revised unremitted dividend
balance would be P209,480,611.50.
Gender and Development (GAD)
4. MWSS-CO has no PCW-approved GAD Plans and Budget (GPB) from CYs 2011 to 2016, no GAD Accomplishment Reports (AR) and just allotted P7.5
million or a measly 0.16 per cent of total appropriation for CY 2016, which were not in accordance with the PCW-NEDA-DBM Joint Circular No. 2012-
01.
4.1 This is a reiteration of prior COA reiterated that Human Aug- Mar- Ongoing
years’ observation that there was no Management strictly abide Management will Resource and 17 18
approved plans and programs for CY with the provisions of PCW- abide with the Records
2015 as required under Executive Order NEDA-DBM Joint Circular provisions of the Management
(EO) No. 273 to address GAD issues in No. 2012-01, General PCW-NEDA-DBM Division
the workplace. Appropriations Act and Joint Circular No.
relevant PCW Memorandum 2012-01 for the
4.2 By virtue of EO No. 273, all Circulars on the preparation preparation of the
government agencies, departments, and submission of the GAD GAD Plan and
bureaus, offices, and instrumentalities, Plan and Budget. Budget.
including government-owned and
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controlled corporations are directed to As rejoinder,
incorporate and reflect GAD concerns in Management should
their annual agency plans, agency still comply for the
performance commitment contracts, early submission of
annual budget proposals and work and the GAD plan to the
financial plans. PCW.
4.3 Likewise, paragraph 4 of said

EO provides that the mainstreaming of
GAD in various government agencies
shall be the responsibility of the heads
of the concerned agencies, with the
assistance of their respective GAD
Focal Points, to ensure
institutionalization thereof.
4.4 Section 7 of the PCW-NEDA-

DBM Joint Circular No. 2012-01
provides significant dates to be
observed in GAD Planning and
Budgeting, including among others but
not limited to:
• September (2 years before

budget year) – PCW issues notification
letters to all line departments or central
offices for the submission of their
annual GPB and GAD ARs to PCW;
and
• January (1 year before budget

year) – Submission of reviewed GPBs
and ARs to PCW.
4.5 Audit revealed that for six

consecutive years starting 2011,
MWSS-CO failed to prepare and submit
on time its GPB to the Philippine
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Commission for Women (PCW) despite
reiteration of audit observations and
recommendations, and extensions of
deadline set by the PCW.
4.6 Moreover, Management

allotted only P7,500,000.00 or a measly
0.16 per cent of its total appropriation of
P4,694,780,000.00 per Corporate
Operating Budget for CY 2016,
which fell short of the 5.0 per cent
requirement under Section 6.1 of the
Joint Circular, which states that:
“At least five per cent (5%) of the total

agency budget appropriations
authorized under the annual GAA shall
correspond to activities supporting GAD
plans and programs. The GAD budget
shall be drawn from the agency’s
maintenance and other operating
expenses (MOOE), capital outlay (CO),
and personal services (PS). xxx”
(emphasis ours)
4.7 In addition, Section 35 of the

2016 General Appropriations Act (GAA)
tasked all agencies to formulate a GAD
Plan and to implement the same by
utilizing at least five per cent (5%) of
their total budget appropriations.
4.8 Nevertheless, Management

still participated in an Inter-Agency
(NAPC, LWUA, MWSS-CO and OGCC)
Joint-GAD Activity in observance of the
18-day Campaign to End Violence
Against Women (VAW) last 5 December
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2016 and incurred expenses for the
VAW shirt and snacks amounting to
P19,355.00 and P6,320.00,
respectively, charged to Training
Expenses account (753).
Cash in Bank
5. Noted were deficiencies in the handling of Cash-in-banks accounts, to wit:
a. Despite the bank migration programs submitted by Management, MWSS still maintained one of its accounts with a bank other than the Government Financial
Institutions (GFIs) required under Department of Finance (DOF) Department Circular No. 001-2015 and 002-2015;
b. Funds received for specific purposes such as payment for foreign loans were not deposited in restricted accounts, contrary to Section 4.3 of P.D. 1445;
c. Recurring Reconciling Items amounting to net of P3.581 million remained unadjusted for as long as 16 years resulting in a misstated Cash in Bank – Local
Currency, Current and Savings Account of P48.844 million; and
d. Non-submission of Monthly Bank Reconciliation Statement (BRS) on certain Local and Foreign Currency Savings Account contrary to Section 74 of P.D.
1445.
5.1 This is a reiteration of prior COA recommended that Management Finance Aug- Dec- Ongoing
years’ audit findings and Management: commented that the Department 17 17
recommendations. account maintained
a. Effect the bank with the PNB shall be
5.2 The reported Cash in Bank migration program and closed at the soonest
amounted to P2.938 billion for CY 2016, close any account possible time.
breakdown as follows: maintained with private
depository banks as As regards other
5.3 Audit of Cash in Bank account required under DOF audit
resulted in the following observations: Department Circular Nos. recommendations,
001-2015 and 002-2015; Management agreed
5.3.1 Despite the bank migration to comply therewith.
programs submitted by the b. Maintain separate
Management, MWSS still maintained bank accounts for the trust
one of its accounts with a bank other receipts from SM Prime
than the Government Financial Holdings and the
Institutions (GFIs) required under Concessionaires as they
Department of Finance (DOF) have specific purposes and
Department Circular Nos. 001-2015 and to facilitate establishing the
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002-2015. cash balance at any time
during the year;
a. Section 5.2 of DOF
Department Circular No. 001-2015 c. Make
dated 01 June 2015 states: representation with the
banks for the submission of
“As part of the Government’s effort to debit and credit advices to
strengthen its overall fiscal position, all support the reconciling
NGAs, GOCCs, and LGUs specifically items for purposes of
allowed by law, rules and regulations to recording in the books; and
retain income and/or for operations investigate the recurring
and/or working balances shall deposit reconciling items to
and maintain accounts with GFIs with a determine their nature and
universal bank license and a CAMELS make the necessary
rating at least “3”.” adjusting entries, if
necessary; and
b. Furthermore, DOF
Department Circular No. 002-2015 d. Prepare BRS on all
dated 10 July 2015 which local/foreign currency
amended the transitory provisions of the savings accounts at the end
previous Department Circular, provides: of each month in
compliance with Section 74
“6. TRANSITORY PROVISIONS of PD 1445.
6.1 All NGAs, GOCCs or LGUs

maintaining accounts with banks not
compliant with the requirements of
Section 5.2, except those allowed under
Sections 5.3 and 5.4, shall have one (1)
year from the effectivity of this Circular
to transfer all funds and cash balances
to a bank complaint with the provisions
of Section 5.2 hereof.
6.2 During the period mentioned in

Section 6.1, NGAs, GOCCs and LGUs
may maintain existing accounts with a
non-compliant bank but may not make
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further deposits thereto.
6.3 Once the period mentioned in

Section 6.1 lapses and the bank is still
unable to meet the requirements of
Section 5.2, NGAs, GOCCs and LGUs
must transfer all funds and cash
balances to banks that meet the
requirements of Section 5.2.”
c. In compliance to the DOF

Department Circular, Board Resolution
No. 2015-096 was issued authorizing
the Administrator to enter into and
execute such documents to fully
implement the migration programs
submitted to the COA.
d. As of December 31, 2016,

confirmation reply from the Philippine
National Bank (PNB), disclosed that the
MWSS still maintained its account for
COLA/Gratuity with the PNB, contrary
with Section 5.2 of DOF Department
Circular No. 001-2015.
e. Per the migration program

submitted by Management to COA, the
above-mentioned account should have
been closed within 30 working days
from the date of Management’s letter
which was on 06 August 2015.
Furthermore, the bank balance of
P402,050.83 should have been
transferred to the authorized
depository bank in July 2016, pursuant
to Section 6.3 of DOF Department
Circular No 002-2015.
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5.3.2 Funds received for specific

purposes such as payment for foreign
loans were not deposited in restricted
accounts, contrary to Section 4.3 of
P.D. 1445
a. Trust Funds are defined in

Section 3(4) of P.D. 1445 as “funds
which have come officially into the
possession of any agency of the
government or of a public officer as
trustee, agent, or administrator, or
which have been received for the
fulfillment of some obligation.”
b. Funds which should be

considered as Trust Funds include the
following: Funds representing collection
from SM Prime Holdings,
P36,000,052.59; and Funds
representing collection from
Concessionaires for the payment of
JBIC loan, P1,913,648,338.37;
respectively.
c. Funds such as the lease

payment received from SM Prime
Holdings and collection from the two
Concessionaires for the payment of the
JBIC loan are to be considered as Trust
Funds pursuant to Section 3(4) of PD
1445. Such funds are to be segregated
and reported separately from the
operating bank accounts of the agency
to prevent the use of the fund for
purposes other than for which it was
created as prescribed in Section 4.3 of
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P.D. 1445 which states that:
“Trust Funds shall be available and may

be spent only for the specific purpose
for which the trust was created or the
funds received.”
d. Verification disclosed that the

funds mentioned above are deposited in
time deposit accounts but no separate
trust account is set up in the books. The
funds are co-mingled with other funds in
the Cash in Bank – Local Currency,
Time Deposit Account.
e. Furthermore, subsidiary
ledgers were not maintained to show
details of the individual accounts
lumped under Cash in Bank – Local
Currency, Time Deposits amounting to
P2,888,119,371.31, contrary to Section
114(2) of P.D. 1445 which states that
“Subsidiary record shall be kept where
necessary.”
f. Variance of P529,514.93 was

noted between bank records
(passbook)/bank confirmation and book
balances. Most noticeable variance is
the negative balance of P488,502.91 for
the depository account with PNB, a
closed account in compliance to DOF
Department Circular Nos. 001-2015 and
002-2015.
5.3.3 Recurring Reconciling Items

amounting to net of P3.581 million
remained unadjusted for as long as 16
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years resulting in a misstated Cash in
Bank – Current and Savings Account
totaling P48.844 million
a. The reported book balances

of the Cash in Bank – LCCA and Cash
in Bank - LCSA and net recurring
reconciling items.
b. Review of the Bank

Reconciliation Statements (BRS)
pertaining to the above depository
accounts showed various reconciling
items that were continuously carried in
the monthly reports and remain
unadjusted in the books for almost 16
years. On the Cash in Bank – Local
Currency, Current Account (CIB-LCCA),
the recurring reconciling items
correspond to the two PNB
current/checking accounts (Corporate
Office and Main/COLA Fund) with
negative book balances totaling
P221,847.11.
c. As discussed in par. 5.3.1.e,

due to bank migration, the PNB –
Corporate Office Fund was closed in
June 2016 in compliance with DOF
Department Circulars, but the PNB –
Main/COLA Fund account (CIB-LCCA)
still exists as of December 31, 2016.
The subsidiary ledger of the CIB-LCCA
account, PNB- Corporate Office has a
negative book balance of P10,539.42,
while the PNB -Main Fund account has
negative book balance of P211,307.69
or a total negative balance of
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P221,847.11, brought about by various
these recurring reconciling items.
d. Likewise, the Cash in Bank –

Local Currency, Savings Account (CIB-
LCSA) maintained with PNB and DBP,
was not correctly reported due to
reconciling items which remained
unadjusted/unreconciled for the past
years, with reconciling items dated as
early as CY 2000. In CY 2016, Cash in
Bank – LCSA showed a book balance
of P5,435,151.24 inclusive of net
reconciling items of P3,359,516.91.
e. Management claimed that the

unrecorded cash/check and debit
memos reported as reconciling items for
the DBP savings account pertained to
the commissions directly deducted by
the bank and paid or transferred directly
to the account of the Collecting Agency
– DBP Services (CADBP) at the time
the Accounts Receivable from
customers are being contracted out.
Despite the request made by the
MWSS, the supporting documents could
not be produced since they are no
longer available , citing the Bangko
Sentral ng Pilipinas (BSP) requirement
of five years standard retention period
for maintaining data. As a rejoinder in
past years observation, the Audit Team
requested Management that data in the
passbook be authenticated by the bank
as basis for the adjustments of the
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reconciling items. To date no action has
been undertaken.
f. The table above also

disclosed an unsubstantiated “Other
Reconciling Items” of P998,110.00,
which nature/origin could not be
determined since they pertained to the
previous DBP bank account as claimed
by Management.
g. As regards the reconciling

item of P63,197.94, this amount was an
overpayment made by the bank, which
should be recorded as receivables from
payees/recipients of the overpayment.
h. Despite our recommendation

to effect the necessary adjustments in
the books to arrive at the correct cash
balance at year-end, reconciling items
remained to be recurring in the BRS.
i. Likewise, Service Charge

amounting to P51,600.00 was debited
to the MWSS’ PNB closed account. Per
Bank Statement, the debit entry on the
bank account pertained to “SC
PAYWISE ADB INST”. Per documents
submitted, nature of the transaction and
details of the service charges were not
supported.
5.3.4 Non-submission of Monthly

Bank Reconciliation Statement (BRS)
on some Local and Foreign Currency
Savings Account was contrary to
Section 74 of P.D. 1445.
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a. Monthly Bank Reconciliation

Statement was not prepared and
submitted regularly for five local and
foreign currency savings account
maintained by MWSS as prescribed in
Section 74 of PD 1445.
b. Bank reconciliation is an
internal control measure of comparing
agency records as against the bank
records to determine the differences
between book balances with the
balances per bank. A bank
reconciliation will aid the agency to
identify any unusual transactions that
might cause fraud or accounting errors.
c. The non-submission of the

Bank Reconciliation Statements of the
bank accounts mentioned above is not
accordance to Section 74 of P.D. 1445
states:
“Section 74. Monthly Report

depositories to agency head. – At the
close of each month, depositories shall
report to the agency head, in such form
as he may direct, the condition of the
agency account standing on their
books. The head of the agency shall
see to it that a reconciliation is made
between the balance shown in the
reports and the balance found in the
books of the agency.”
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Grant and Liquidation of Cash Advances
6. Grant and liquidation of cash advances were found not compliant with the prescribed guidelines, to wit:
a. Cash Advances amounting to a. COA recommended that Management agreed Finance Completed
P664,715 were granted to employees Management comply with the to comply with the Department
despite unliquidated/unsettled previous prescribed liquidation period audit
cash advances, contrary to Section 89 of cash advances per Section recommendations.
of P.D. 1445; 5.1 of COA Circular 97-002.
b. Cash Advances were b. that Management require

liquidated beyond the prescribed period adequate bonding of all
contrary to Section 5.1 of COA Circular Accountable Officers in
No. 97-002; and accordance with Section 4.1
of the Treasury Circular No.
c. Special purpose cash 02-2009.
advances were granted to
officers/employees who were not
bonded contrary to Section 4.1 of the
Treasury Circular No. 02-2009.
6.1.1. Grant of Special purpose cash

advances to officers/employees who
were not bonded contrary to Section 4.1
of the Treasury Circular No. 02-2009.
a. Section 4.1 of Treasury

Circular No. 02-2009 states that “Every
officer, agent, and employee of the
Government of the Philippines or the
companies or corporations of which the
majority of stock is held by the National
Government (NG), regardless of the
status of their appointment shall,
whenever the nature of the duties
performed by such officer, agent or
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employee permits or requires the
possession, custody or control of funds
or properties for which he is
accountable, be deemed a bondable
officer and shall be bonded or bondable
and his fidelity insured.”
b. One-time cash advances for

Special Purposes totaling P266,380.00
were granted to officers who were not
bonded/insured contrary to Section 4.1
of Treasury Circular No. 02-2009, to wit:
c. Moreover, for special

purpose/one time activity, the cash
advance should be secured by the
bonded officer/employee to avoid
payment of additional fidelity bond.
d. Consequently, it is important
that employees/officials whose nature of
the duties performed permits or requires
the possession, custody or control of
funds or properties for which he/she is
accountable are bonded .
Monetization of Leave Credits
7. Monetization of employees’ vacation and sick leave credits for CY 2016 amounting to P480,158 was not in accordance with the CSC Resolution No.
98-3142 re: Omnibus Rules on Leave.
Further, 12 employees were found to have negative balance in their VL credits as of December 31, 2016.
7.1. This is a reiteration of prior COA recommended that Management shall Human Completed
year’s audit observations as to non- Management: comply with the audit Resource and
compliance with the provision under recommendations. Records
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Section 22 of the Omnibus Rules on a. Observe and apply Management
Leave requiring five days minimum VL Sections 22 and 23 of the Division
balance prior to the monetization. Omnibus Rules on Leave
(CSC Resolution No. 98-
7.2. Section 22 of the Omnibus 3142) including relevant
Rules on Leave (CSC Resolution No. CSC resolutions, in the
98-3142 dated December 14, 1998), computation of claims for
provides that: monetization of leave
credits monetization; and
“Officials and employees in the career
and non-career service whether b. Delete from the
permanent, temporary, casual, or payroll system the
coterminous, who have accumulated employees with negative
fifteen (15) days of vacation leave leave credit balances and
credits shall be allowed to monetize a deduct from their salary
minimum of ten (10) days: Provided, claim the corresponding
that at least five (5) days is retained over availment of
after monetization and provided further monetization of leave
that a maximum of thirty (30) days may credits therefrom and
be monetized in a given year.” require the HRRMD to
(emphasis supplied) regularly monitor the
employees’ leave balances.
7.3. Contrary to the above
provision of the Omnibus Rules on Management submitted the
Leave, 16 employees who have less following comments:
than 15 days accumulated vacation
leave credits were allowed to monetize a. Employees were
at a total amount of P480,157.71. The allowed to monetize as long
employees are as follows: as they have available sick
leave credits and duly
7.4. After monetization, the approved by the Head of
vacation leave credits of two employees the Agency pursuant to
fell short of the required five days Sec. 23.
retained VL, namely:
b. They have
7.5. Inquiry with the Human recovered the money value
Resource and Records Management of the negative leave credit
Division (HRRMD) revealed that balance of Ms. Veronica
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monetization of sick leave credits may Cleofas through salary
be allowed only for valid and justifiable deduction. As for others,
reasons. However, audit of the MWSS will ensure that any
submitted certified true copies of leave absences/undertime/
cards showed that six employees were tardiness incurred without
allowed to monetize their sick leave pay and the leave earned in
credits without valid and justifiable a month are properly
reasons, contrary to Section 23 of the recorded to off-set the
Omnibus Rules on Leave: negative balance.
“Monetization of 50% of vacation/sick 7.2. As our rejoinder,

leave credits – Monetization of fifty per henceforth, non-compliance
cent (50%) of all the accumulated leave with the documentary
credits may be allowed for valid and requirements prescribed in
justifiable reasons subject to the the Omnibus Rules on
discretion of the agency head and the Leave will cause issuance
availability of funds.” (emphasis of the necessary Notice of
supplied) Suspension.
7.6. Further, 16 employees were

allowed to monetize their sick leave
credits although they still have available
vacation leave credits, contrary to CSC
Resolution No. 000034 dated 5 January
2000 re: Belen Maslan’s Query on the
Monetization of Leave Credits, that
ruled vacation leave credits must be
exhausted first before sick leave credits
may be used. Details are as follows:
7.7. As regards negative balances

in VL credits and as previously
recommended, the HRRMD should
review on a regular basis, the leave
card balances of all employees to
ensure that accurate balances are
reflected in the employees’ leave cards.
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7.8. We observed that several
employees have negative balance in
their accumulated VL credits; in SL
credit; and in both VL and SL credits as
of December 31, 2016, as follows:
Trip Ticket of MWSS-owned Vehicles

8. Trip tickets authorizing the use of government vehicles for official purpose were not properly accomplished and none was issued to four service vehicles. Also, the
Monthly Report of Official Travels was not submitted to the Office of the Auditor as required in Item V of COA Circular No. 75-6.
8.1. Item V of COA Circular No. 8.9. We recommended Management shall Office of the Aug- Dec- Ongoing
75-6 on the regulations in the proper that Management: comply with the audit Administrator, 17 17
use of government vehicle states that: recommendations Administrative
a. Require the and General
“Use of trip tickets - The use of concerned Services
government motor vehicles by the employees/officers to Department,
bureaus and offices enumerated under submit the duly filled out trip Property
Section 12 of Presidential Decree No. tickets to support the use of Management
733 for the purpose herein indicated the four service vehicles Department
shall be authorized only through the and henceforth, ensure that and
issuance of each trip ticket, duly signed trip tickets are accomplished Engineering
by the Chief or the Administrative and duly approved by and Project
Officer of the bureau, office or entity authorized officials before Management
concerned xxx. At the end of each embarking on a trip; Department
month, the date shown on all the trip
tickets issued during the month should b. Enhance or improve
be transcribed or summarized in the format of trip ticket by
chronological order in a Monthly Report including spaces for the
of Official Travels to be accomplished names and number of
by the driver of each car concerned. passengers; and
The Monthly Report of Official Travels
should be accomplished in triplicate, the c. Submit to the Office
original thereof supported by all the of the Auditor the Monthly
Driver's Trip Tickets, to be submitted, Report of Official Travels for
thru the administrative officer (or audit as required under
equivalent officer) of the bureau, office COA Circular No. 75-6.
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or entity concerned, to the auditor
thereof, the duplicate to be kept by the
bureau, office or entity, and the triplicate
to be retained by the driver (General
Circular No. 26, dated July 28, 1953).
Except in emergency cases, under no

circumstance should government motor
vehicles be used without the
corresponding trip ticket having been
duly issued by the official designated for
the purpose. In case of use of said
vehicles without such trip tickets, the
official to whom the vehicle is assigned,
his driver and other passengers shall be
held personally liable for the
unauthorized use thereof.” (emphasis
ours)
8.2. The use of government

vehicles shall be authorized only
through the issuance of trip tickets
serially numbered and duly signed by
authorized officials. It is a tool in limiting
the use of government vehicles to
official and essential activities and
minimize unnecessary trips for
purposes other than official
function/business.
8.3. Verification of various MWSS

Driver’s Trip Tickets, on a test basis,
disclosed the following deficiencies:
8.3.1. Necessary details in the trip

ticket were not properly filled-out such
as but not limited to:
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a. Name of Authorized
Passenger;
b. Division/Department;
c. Purpose of Travel;
d. No. of Other Passengers;
e. Places to be Visited; and
f. Odometer Reading and time
in and out of the vehicle (For Security
Guard)
8.3.2. Names of Other Passengers

were not specified nor were the
signatures affixed on the space
provided under the certification portion
that the use of vehicle is exclusively for
official business. It is a control measure
to name the other passengers in
ensuring regularity of trips/travels.
8.3.3. There is no indication of a

requesting party for the use of
government vehicle, but only approval
thereof.
8.4. Also, no trip tickets were

issued to the following government
vehicles:
8.5. Verification of the Monthly

Fuel Issuance Report disclosed that the
vehicles incurred gasoline expenses
totaling P194,921.15 as shown in the
above table. It is further observed that
the Nissan Frontier with plate no. WMV
696 is being utilized as service patrol at
the La Mesa dam, however, the
gasoline consumption amounted to
P96,316.44. Considering the location of
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the property being serviced, the
gasoline consumption may be regarded
as excessive.
8.6. Inquiry from the Management

disclosed that vehicle with plate number
SGZ 339 is assigned at the Umiray
Angat Transbasin Project (UATP) and
vehicle with plate number WMV 696 is a
service patrol at La Mesa Dam. On the
other hand, vehicles with plate numbers
SKC 206 and SHU 976 are intended as
carpool for the Admin. Office as
reflected in the monthly fuel issuance
summary. Although, interview from the
driver concerned of SKC 206, disclosed
that since CY 2010, the vehicle is
assigned at the Office of the
Administrator and no corresponding trip
ticket for every official travel was
prepared.
8.7. Further, Monthly Report of

Official Travel was not submitted to the
Office of the Resident Auditor for audit
purposes as required under COA
Circular No. 75-6.
8.8. Trip tickets with incomplete

information and non-submission of the
Monthly Report of Official Travels do not
provide sufficient evidence or
documentation to determine legitimacy
of travels made and accuracy of
gasoline/fuel consumption.
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E. Value for Money Audit – Corporate office
Loss of income and incurred additional expenses
1. MWSS was deprived of income and incurred additional expenses from the operations of its basement area by allowing the MWSS Corporate
Office Multi-Purpose Cooperative (MCMC) to manage and lease the same to private individuals and shoulder the electricity expenses consumed in
the area, totaling P1.6 million and P0.89 million, respectively, for CY 2016. Further, an area leased by the MWSI was being occupied by a food
establishment without approval/consent from MWSS.
1.1 MWSS Canteen is located at COA recommended that Management SDA, Aug- Dec- Ongoing
the basement of the Operations and Management: commented that the Property 17 18
Engineering Building and has been concessionaires / Management
leased out to concessionaires as early a. Submit to this Office occupants of the Department,
as CY 2004 for its operations. The free the authenticated canteen space have Legal
use of the area by the MWSS Corporate documents bearing the already been Services
Office Multi-Purpose Cooperative was name of officers who informed to directly Department
allowed by the MWSS Management approved/allowed the pay to the MWSS and
citing Article 62 paragraph 2 of R.A. MWSS Multi-Purpose Treasury. Amount AGSD
9520, also known as the Cooperative Cooperative to manage and due from the MCMC
Code of the Philippines, as its privilege lease out the basement for the collections
to use the space. It states: areas; made from the rent
and electricity
“Cooperatives organized among b. Enforce collection/ consumption of the
government employees, remittance of MWSS’ share canteen
notwithstanding any law or regulation to on the income derived from concessionaires shall
the contrary, shall enjoy the free use of the canteen space and the also be determined
any available space in their agency payment of electric and payment shall be
whether owned or rented by the consumption for the last two demanded from the
government.” years; cooperative.
1.2 The cooperative then leased c. Comply with the

out the area to private provision of Section 4(2) of
individuals/persons. The canteen space PD 1445 as regards the use
is approximately measured at 966 of government property; and
square meters (sq.m) and is now
occupied by two concessionaires - d. Take appropriate
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canteens A and B, namely Bobber Food action in accordance with
Services and Henrilyn Food Stop, two of paragraph 14 of the lease
the largest spaces in the MWSS contract thru written notice
canteen. The area is also occupied by to the defaulting party with
small stalls, such as, Gloria Empanada regard to MWSI’s failure to
Espesyal, Well Tea, Potato Giant, Red comply with the terms and
Bowl, Lemonade Bar, Siomai House, a conditions of the contract, in
computer repair shop, fruits and particular, paragraphs 2.1
vegetables shop/stand, and eye clinic. and 8, and rescind or
These stalls pay their monthly rental to terminate the same should
MCMC. the defaulting party fail to
remedy the breach within
1.3 Verification from the report of thirty (30) days from its
collections, disclosed that the last inflow receipt of the written notice.
of income received by MWSS from the
rental of space in the basement area
and outside, covered CY 2013
amounting to P109,412.82, and no
rental remittance/collection was
received since then. Approximately,
P1,608,000.00 could have been earned
in CY 2016 alone from 42 small
stalls and two large canteen occupants.
Shown in the next page is the estimated
rental fee of the lessee of the basement
area:
1.4 Likewise, aside from the

canteen/stall areas, rentals from the
temporary stalls set up for the
“tiangge/bazaar” during the holiday
season were also collected by the
cooperative.
1.5 Hence, the practice is

contrary to Sections 2 and 4 (2) of P.D.
1445 which state:
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“Section 2. Declaration of Policy – It is
the declared policy of the State that all
resources of the government shall be
managed, expended or utilized in
accordance with law and regulations,
and safeguarded against loss or
wastage through illegal or improper
disposition, with a view of ensuring
efficiency, economy and effectiveness
in the operations of government. The
responsibility to take care that such
policy is faithfully adhered to rests
directly with the chief or head of the
government agency concerned.”
“Section 4. (2) Government funds or

property shall be spent or used solely
for public purposes.”
1.6 Furthermore, it also falls

under the cases considered as “Illegal”
Expenditures as provided in Case No.
5.3 of Annex B of COA Circular No.
2012-003:
“Use of government property such as

office supplies and office equipment,
and government facilities and buildings
for personal purposes”
1.7 Clearly, the provision

mentioned in Article 62 par. 2 of RA
9520 is not absolute. Although the
cooperative has the privilege to enjoy
the use of the portion of the area, to
lease/sub-lease it to other tenants is
another thing, since it is a direct
violation of Sections 2 and 4 (2) of PD
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1445. Moreover, even the
power/electric consumption of the
tenants in the basement area are being
shouldered by the MWSS with an
estimated amount of P889,801.92 for
the billing period December 26, 2015 to
November 25, 2016.
1.8 Consequently, the MWSS

was deprived and being deprived of
annual opportunity income, more or less
of P3,216,000.00 million, for two years
(CYs 2014 and 2015), a very
conservative estimate, and incurred
additional/unnecessary expenses of
P1,400,000.00 for two years for electric
consumption of the tenants in the
basement area.
1.9 Further, interview and

documents secured with some tenants
in the canteen area also revealed that
the receipts currently being issued by
the MCMC is merely a printed
Acknowledgement Receipt and not an
Official Receipt registered with the
Bureau of Internal Revenue.
1.10 Furthermore, information

gathered from an MWSS employee
disclosed that MCMC is collecting rental
from one of the restaurants located at
the Balara Filters area, also an MWSS
property.
1.11 It was also observed that

other employees’ associations/groups
are provided with office spaces in the
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basement area. Per interview with and
MWSS employee, these offices are not
paying rent and utility consumption. It is
also informed that WASSLAI has a
MOA with MWSS. The employees’
groups are as follows:
1.11.1. KKMK MWSS Union;
1.11.2. Water and Sewer Services

Cooperative (WASSECO); and
1.11.3. Water and Sewerage Sector

Savings and Loans Ass., Inc.
(WASSLAI)
1.12 It is also worth citing, that on

14 February 2017, our Office requested
from the MCMC Chairman for data and
documents pertaining to the operations
of the Cooperative of the MWSS
canteen area. The Chairman in her
letter dated 15 February 2017,
requested for one week extension to
submit the documents/data, however, to
date, the data/documents have yet to be
submitted.
1.13 It was also noted that
beginning 01 October 2011, Maynilad
Water Services Inc. (MWSI) leased an
additional area of 6,275.45 sq. m. in the
Engineering Building, 553.35 sq. m. at
the ground floor and 177.47 sq. m. at
the second floor or a total leased
premises of 7,006.27 sq. m. as of CY
2011. However, in November 2013,
leased premises were again increased
from 7,006.27 sq. m. to 7,058.66 sq.m.
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1.14 Paragraphs 2.1 and 8 of the

lease agreement between MWSS and
MWSI state:
“2.1 The LESSEE shall use the Leased

Premises exclusively for office
purposes”
“8 The LESSEE shall not assign or
sublease the whole or any part of the
Leased Premises without the written
consent of the LESSOR. Otherwise,
such assignment or sublease shall be
null and void.”
1.15 Inspection of the area leased

by MWSI revealed that it is being
occupied by a food establishment
without approval/consent from MWSS.
The lease agreement between MWSS
and MWSI stipulated that the Lessee
(MWSI) agreed that it shall only use the
leased premises exclusively for office
purposes and that it shall not
assign/sublease the whole or any part
of the Leased Premises without the
written consent of the Lessor (MWSS).
Otherwise, such assignment or
sublease shall be null and void.
1.16 Finally, the management and

utilization of government resources,
such as the MWSS Canteen Area, rest
with the agency head and/or employees
directly responsible therefor as provided
in Sections 101 to 103 of PD No. 1445:
“Section 101 (1) – Every officer of any

Page 122 of 123
Action
From To
government agency whose duties
permit or require the possession or
custody of government funds or
property shall be accountable therefor
and for the safekeeping thereof in
conformity with law.”
“Section 102 Primary and secondary
responsibility. – (1) The head of any
agency of the government is
immediately and primarily responsible
for all government funds and property
pertaining to his agency.
(2) Persons entrusted with the
possession or custody of the funds or
property under the agency head shall
be immediately responsible to him
without prejudice to the liability of either
party to the government.”
“Section 103 General liability for
unlawful expenditures. – Expenditures
of government funds or uses of
government property in violation of law
of regulations shall be a personal
liability of the official or employee found
to be directly responsible therefor
Agency Sign-off:
PDDG REYNALDO V. VELASCO (Ret.)

Administrator
MWSS Corporate Office
Page 123 of 123

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AGENCY ACTION PLAN and STATUS of IMPLEMENTATION (AAPSI)

Audit Observations and Recommendations

Agency Action Plan Reasons for

Presentation of Appraisal Capital Stock

1.3. As of December 31, 2016,

This amount should have been

1.5. Further, no changes have

1.6. In CY 2014, various

All of these adjustments except for

1.7. To comply with the prior

However, further verification

1.8. Meanwhile, under COA

1.9. MWSS, being a non-GBE,

PAG 2 of PPSAS 16 covering Investment property states:

c. On 11 May 2011, the

d. Likewise, on 6 June 2014,

e. Further verification showed

Based on the foregoing, the

h. Also, the propriety of

i. Lack of details and

ii. The proposed

Other Receivables-MWSI & MWCI

a. Other receivables from

b. MWSI further disputed the

Results of the Physical Inventory-taking of Property, Plant and Equipment

3.1. This is a reiteration of previous year’s findings and recommendations.

3.4. MWSS’ PPE are broadly classified as follows:

Total net variance of P3.280 billion g. Immediately conduct

Various unserviceable GAE

During the audit of prior year’s

Not Valid Obligations included in Other Deferred Credits account

4.3. Analysis of the account Other

4.4. The account Other Deferred

4.4.1. Credits with no

a. Deferred Credits to Income-

b. Deferred Credits to Income-

c. Deferred Credits to Income-

4.4.2. Credits with

a. Other Deferred Credits to

b. Other Deferred Credits to

Section 2.2 (a) of the Memorandum of

Records disclosed that the proceeds

c. Other Deferred Credits to

a. Other Deferred credits to

b. Other Deferred Credits to

(2) The highest standards of honesty, c. For receivable

a. Dormant accounts in on active

b. After the review and validation

b.1 Effect the adjusting journal entries

b.2 Determine proper disposition of

b.3 If there are cash accounts which will

b.4 If the analysis/review of the

b.4.1 List of available records and

b.4.2 Certifications and reasons why the

5.2.3. COA Circular No. 2016-005

5.2.4. On the procedures to write-off

“8.2 The head of the government entity

8.3 The request shall be supported by

b. Certified relevant documents