Case Study 1.

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Fraud Audit Manual Form FoAM 02 – FRA Template

Agency name: PHILIPPINE WATER UTILITY COMPANY

Performed By: Date: WP ref:
Reviewed By: Date:

COA auditor should obtain the Understanding the Agency (UTA) template of the IRRBAM portion and we identify the Agency’s Mandate, Operations,
Objectives and Strategies, Critical Success Factor, Key Performance Indicators.

A. Mandate

The Philippine Water Utility Company (PWUC) was established in 1973 by Presidential Decree No. 198, as amended, otherwise known as the Provincial Water
Utilities Act of 1973 to promote the development of provincial water supply in the Philippines. PWUC's establishment was the national government's response to
the problems then besetting the provincial water supply, among them funding problems, institutional weaknesses and technological inadequacies which led to the
generally poor water service in the countryside during the period.

B. Function/Operations

PWUC shall proved institutional development services, and strengthen its, ending practices and policies on granting financial assistance grounded on sound
development banking principles aimed at graduating water districts (WDs) and other water service providers (WSPs), allowing efficient use of financial resources,
extend technical assistance to WDs/WSPs and addressing the need for a greater number of WDs/WSPs.
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Fraud Audit Manual Form FoAM 02 – FRA Template

C. Objectives

For the next four years, PWUC has set the vision of being the leader in building sustainable and self-reliant water districts and other water service providers serving
the Filipino people in the countryside with the mission of providing these institutions financial, technical, institutional and regulatory assistance by being a viable,
effective and world class organization.

D. Strategies

To attain its vision and to carry out its mission, PWUC has set for itself four goals, namely:

(1) expanded service coverage of water service providers;

(2) self-sustaining water service providers;
(3) world-class PWUC organization; and
(4) financially viable PWUC operations.

E. Critical Success Factors

PWUC's share in the Medium Term Philippine Development Plan includes the completion of 639 water infrastructure projects within a seven-year period starting in
2004 thereby making possible access to safe potable piped water supply to 875,000 additional service connections or a total of more than four million additional
Filipinos in the provincial areas by 2010.

On year by year basis, PWUC has henceforth set the target of 115 completed water projects in 2004; 107 completed projects in 2005; 113 completed projects in
2006; 81 completed projects in 2007; 71 completed projects in 2008; 59 completed projects in 2009 and another 93 completed projects in 2010 for a grand
total of 639 completed water infrastructure projects.

F. Key Performance indicators

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Fraud Audit Manual Form FoAM 02 – FRA Template

PWUC's specific objectives for the period include:

(1) The increase in population served with potable water by an estimated 2.5 million people through the development of 223 water supply infrastructure projects
in various water districts by year 2010, including 50 waterless communities within the WD coverage.
(2) The initiation of access to sewerage or septage management through pilot, low-capital projects, in around four (4) recipient areas.
(3) The self-sustainability of an estimated 50 less-creditworthy water districts.
(4) The revitalization of PWUC towards being a world-class and financially viable organization.

Between 2008 and 2010, PWUC plans to invest an additional P5.421 Billion towards the completion of an additional 223 water infrastructure projects to serve an
additional 490,000 households or an additional 2.5 million people in 223 water districts to include waterless communities covered by water districts.

In specific terms, PWUC plans to complete Level Three water projects in 71 water districts in 2008 that will include 21 projects for water less communities covered
by water district; 59 projects in 2009; 54 projects in 2009 and another 93 projects in 2010 that will also include 29 projects for waterless communities covered
by water districts to be determined in coordination with other government agencies such as the National Anti-Poverty Commission (NAPC).

By year 2010, the total cumulative population served under the PWUC-water district jurisdiction is estimated to increase to 16.65 million from 12.6 million in
2004.

G. Others (COA Alert)

Per COA alert, there have been reports that there are irregularities in the disbursements of loans for water district. It was reported that the whole amount of the
loans that are supposed to be release to the district are actually being split by some PWUC officials and water district officials.
 Case Study 1.0
Fraud Audit Manual Form FoAM 02 – FRA Template

From the information COA auditor gathered (lists above), COA auditor assesses those information and identifies the fraud risk that might affect the
agency’s Mandate, Operations, Objectives and Strategies, Critical Success Factor, Key Performance Indicators. Using COA auditor’s professional
judgment and FoAM’s fraud categories, we identify all possible fraud risks and schemes of the agency and document them in the table below:

Overall
Fraud category1 Risk Statement2 Process3 Sub-processes4 Impact5 Likelihood6 Assessment7 Audit response8
 Case Study 1.0
Fraud Audit Manual Form FoAM 02 – FRA Template

Overall
Fraud category1 Risk Statement2 Process3 Sub-processes4 Impact5 Likelihood6 Assessment7 Audit response8

1. Fraud Category – COA auditor list down if the key fraud risk is under the fraud risk category of; Corruption, Asset Misappropriation, and Financial statement Fraud.
2. Risk Statement – COA auditor would indicate the risk description of the agency.
3. Process(es) – COA auditor identifies which process in the agency is affected by the fraud risk identified.
4. Sub-Process(es) - COA auditor identifies which specific area in the process is affected by the fraud risk identified.
5. Impact – COA auditor should assess the extent of the identified fraud risks to the agency. Factors that may help define the impact rating may include financial effect,
reputation impacts, ability to achieve key objectives, etc.
6. Likelihood – COA auditor should assess the susceptibility of the agency to identified fraud risks.
7. Overall Assessment – COA auditor assess the combined assessment on the impact and likelihood of the fraud risks within the agency and rank this as either low, moderate,
and high.
8. Fraud Response – Base on the overall assessment, COA auditors provides a proper audit response to all identified fraud risk, e.g. test of controls, substantive test, or
detection control.