FINANCIAL MANAGEMENT

Mildred G. Aviles
AGM for Administration
Davao City Water District

OUTLINE
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I.
II.
III.
IV.
V.

Financial Management Function

Capital Investment Decisions
Budgeting
Internal Control
Understanding the Water Utilities
Financial Statement

I. THE FINANCIAL MANAGEMENT FUNCTION

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Responsible for managing the financial resources

Deciding about how to raise capital, and how it is
to be invested
Needs mostly accounting information as input

I. THE FINANCIAL MANAGEMENT FUNCTION

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Collections /
Water Sales

Physical
Facilities

Creditors

Expenses

Retained
Earnings

I. THE FINANCIAL MANAGEMENT FUNCTION

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Basic Accounting Information System
I.
Business
Transaction

II.
Bookkeeping
Process

III.
Financial
Statements

I. THE FINANCIAL MANAGEMENT FUNCTION

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Users of Accounting Information

External
COA
Customers
Investors
Suppliers

I. THE FINANCIAL MANAGEMENT FUNCTION

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Accounting information facilitate management

decision-making.

I. THE FINANCIAL MANAGEMENT FUNCTION

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Financial Managers
Interpret the financial management
information and explain the business
implications to top management and Board of
Directors
Financial planning and modelling

CAPITAL
INVESTMENT

II. CAPITAL INVESTMENT DECISIONS

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Which do I purchase?
What is the return on the
investment?
What are the qualitative costs
and benefits?
What are the quantitative costs
and benefits?

III. BUDGETING
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Budgets are plans dealing with the

acquisition and use of resources over a
specified time period.

III. BUDGETING
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Budget can be in terms of:

Money
Time
Acquisition and use of materials
Production volume
Number of service connections

III. BUDGETING
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Traditionally, budgeting is a bottom-up

process dependent on department managers
to provide detailed plans for the upcoming
month, quarter or year.

III. BUDGETING
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Zero-Based Budgets require managers to
build budget from the ground up each
year rather than just add a percentage
increase to last years number
Budget must start with a top-down
strategic plan that guides and integrates
the whole company and its individual
budgets

III. BUDGETING
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BUDGETING is a MANAGEMENT task, not a

bookkeeping task.

III. BUDGETING
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The budget process forces communication

throughout the organization

It forces management to focus on the future

and not be distracted by daily crisis in the
organization

III. BUDGETING
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Output of Budget Process

1. Operating Budget

2. Capital Budget

III. BUDGETING
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III. BUDGETING
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IV. INTERNAL CONTROL

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FRAUD
Comprises the plan of organization and all the
methods and measures adopted within an agency
to ensure that resources are used consistent with
laws, regulations and policies, resources are
safeguarded against loss, wastage and misuse,
financial and non-financial information are
reliable, accurate and timely, and operations are
economical, efficient and effective.
(sec. 32
GAAM vol. 3)

IV. INTERNAL CONTROL

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FRAUD
Common law requirements for
fraud
include
a
false
representation of a material
fact made by one party to
another, with the intent to
deceive and induce the other
to justifiably rely on the fact to
his or her detriment.

IV. INTERNAL CONTROL

_______________________________________
FRAUD
In business, fraud may include:
Internal deceptions by management
Manipulation of financial data
Misappropriation of the organizations
assets
Falsifying documents or accounting
records

IV. INTERNAL CONTROL

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MANAGEMENT FRAUD

KEY CONCEPT
Management fraud can be very difficult to detect

IV. INTERNAL CONTROL

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III. Conducts periodic audit

procedures to ensure that
errors and irregularities in
financial information are
detected.

IV. INTERNAL CONTROL

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EMPLOYEE FRAUD

KEY CONCEPT
Good internal control systems can
usually detect and prevent most
types of employee fraud

IV. INTERNAL CONTROL

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Role of External Auditor

To attest the fairness of

the financial statements
and to report any
discovered fraud or
irregularities.

IV. INTERNAL CONTROL

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Internal Control for Cash
The cash department should be under the
supervision of the treasurer
The cash department should be separated from
accounting and other departments that keeps
records of transactions and events
All cash transactions must be supported by
available proof of accuracy
All cash receipts must be deposited intact in the
designated depository on the day of collection or
in the following business day

IV. INTERNAL CONTROL

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Internal Control of Receivables
Provide an accurate and reliable accounting
report on receivables
Promote operational efficiencies on credit
and collection systems
Encourage adherence to prescribed
managerial policies

IV. INTERNAL CONTROL

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Efficient Billing System

Bill completeness
Error-free statement of bills
Send bills on time
Frequency of collection follow-up
Visibility of collection personnel
Electronic fund transfer and concentration
banking

IV. INTERNAL CONTROL

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Credit Cycle

IV. INTERNAL CONTROL

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Credit Management
Strategically defines the quality of accounts
receivable collections
If credit standards are high, the rate of collection
is expected to be high, or vice-versa
Credit processes precede collection activities
The idea is simple do it right the very first time

IV. INTERNAL CONTROL

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Collectible Cycle

IV. INTERNAL CONTROL

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Collection Management

Starts from the date a merchandise is sold to

credit customers
Billing and collection policies are interrelated to
complete the collection cycle

V. UNDERSTANDING WATER UTILITIES

FINANCIAL STATEMENTS
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How Can We Determine:

The ability of water district to pay loans?

Whether we are earning a fair return on
investments?
The adequacy of cash flow to pay operating
expenses?
Critical areas to improve the overall performance
of the water district?

V. UNDERSTANDING WATER UTILITIES

FINANCIAL STATEMENTS
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Financial Statement Analysis

Financial statement analysis provides

additional information necessary to enhance
the decision-making ability of the users of the
information.

Performance and condition of a water district

should be compared with industry
performance and standards, budgets and
other norms.

V. UNDERSTANDING WATER UTILITIES

FINANCIAL STATEMENTS
_______________________________________
Vertical Analysis

Compares relationships of accounts within a

given period.

Balance Sheet accounts are stated normally

as a percentage of total assets.

Income Statement accounts are stated

normally as a percentage of Operating
Revenues.

V. UNDERSTANDING WATER UTILITIES

FINANCIAL STATEMENTS
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(in millions)

V. UNDERSTANDING WATER UTILITIES

FINANCIAL STATEMENTS
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Horizontal Analysis

Horizontal analysis is used to analyze

changes in accounts over two or more
periods, or by matching against a
comparable statement

V. UNDERSTANDING WATER UTILITIES

FINANCIAL STATEMENTS
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Horizontal Analysis

Trend Analysis: analysis of financial statement

over several years

V. UNDERSTANDING WATER UTILITIES

FINANCIAL STATEMENTS
_______________________________________

V. UNDERSTANDING WATER UTILITIES

FINANCIAL STATEMENTS
_______________________________________

V. UNDERSTANDING WATER UTILITIES

FINANCIAL STATEMENTS
_______________________________________

V. UNDERSTANDING WATER UTILITIES

FINANCIAL STATEMENTS
_______________________________________

V. UNDERSTANDING WATER UTILITIES

FINANCIAL STATEMENTS
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REFERENCES :

Management Advisory Services (2009 Edition)

by: Franklin T. Agamata, MBA, CPA

Financial Management For Water Utilities

by: Redentor C. Talavera

CASH FLOW
Mildred G. Aviles
AGM for Administration
Davao City Water District

IMPORTANCE OF CASHFLOW
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Basic reference in the establishment and review
of water rates
Indicates the sufficiency/insufficiency of water
rates
Determines the need for any rate increases
Basis in monitoring the districts operations
Determines the districts ability to make forecasts
Presents the districts financial picture for a given
period of time

CASH FLOW
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Has direct impact on liquidity and profitability of
the business
Synchronized cash inflows and cash outflows
results to harmonious cash position and excellent
cash management
Management towards efficient operating cash
flows is to speed up collections and maximize
timing of cash payments

BASIC CASHFLOW COMPONENTS

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RECEIPTS
Current Water Sales
Collection of previous years arrears
Other Receipts

BASIC CASHFLOW COMPONENTS

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DISBURSEMENTS

Operating and Maintenance Expenses

(salaries, power/pumping cost,
chemical cost, fixed and variable costs)
Debt Service
Equity Contribution
Capital Expenditures
Reserves
Tax Provisions

CASH FLOW MANAGEMENT

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Effective Cash Outflows Management
include

Use of checks and drafts

Voucher System
The 3:00 oclock habit
Thank God Its Friday (TGIF) Syndrome
Payroll Management

SAMPLE WATER DISTRICT

CASH FLOW STATEMENT
As of May 31, 2015

Variance
Actual

Target

Fav
(Unfav)

Current

P1,180.126

P1,192.677

(P12.551)

-1%

Arrears

288.980

247.829

41.151

17%

Penalty Charges

34.666

30.979

6.687

12%

Misc Service Revenues

11.752

6.667

5.085

76%

Meter Maintenance Charges

42.053

40.286

1.767

4%

Service Fee

28.512

19.750

8.762

44%

2.331

2.331

318.618

318.618

P1,907.038 P1,859.137

P47.901

3%

AR-Emp/Others
Others
TOTAL CASH RECEIPTS

Cashflow Statement
Variance
Actual
Salaries and Benefits

Budget

Fav
(Unfav)

P292.627

P304.026

P11.399

4%

281.654

300.833

19.179

6%

13.645

19.565

5.920

30%

Supplies and Materials

105.804

119.955

14.151

12%

Other Operating Expenses

121.164

143.268

22.104

15%

23.610

23.610

Capital Expenditures

186.624

197.714

11.090

6%

Non-Operating Disb

752.451

752.451

P1,777.579

P1,861.422

P83.844

5%

Light and Power

Fuel & Oil

Debt Service

TOTAL DISBURSEMENTS

Cashflow Statement

Variance
Actual
Total Receipts
Total Disbursements
Net Receipts

Cash, Beginning
Cash, Ending

Budget

Fav
(Unfav)

P1,907.038

P1,859.137

P47.901

3%

1,777.579

1,861.422

83.844

5%

129,.459

(2.285)

131.744

102%

166.012

166.012

P295.470

P163.726

P131.744

45%

BASIC CASHFLOW COMPONENTS

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GENERAL DATA

Connections
Market Growth
Service Area Population
% of Population Served
Consumption/Connection/Month
Billed Consumption (in cu.m.)
Non-Revenue Water (%)
Production (in cu.m.)
Effective Rate
Rate Increase (%)
Collection Efficiency