'Execs of non-performing LWUA agency enjoy perks in millions'

MANILA, Philippines - The Commission on Audit (COA) disclosed that a non-performing and newly created attached agency of the controversial Local Water Utilities Administration (LWUA) has executives that enjoy millions of pesos in perks while the firm incurred losses of more than P18.59 million last year.

The LWUA Consult Inc. (LCI) posted the loss in 2010, its first year of operations, due to the alleged payment of operating expenses including allowances and other benefits granted to its officials.

COA reported that the subsidiary agency was created by LWUA for the purpose of engaging in and carrying on “a general business of consultancy, system management, technology research and special services to enhance the capability of water utilities through water resource development, surveys, engineering studies, water quality monitoring, sewerage development and other technology transfer arrangements.”

The COA report said that LCI did none of its primary functions last year because it basically engaged in well drilling activities and leak detection services.

“We observed that the performance record of LCI during its initial year of operation does not clearly show attainment of its vision and mission, much more, the purpose for which LCI was created,” state auditors said.

The COA report said such activities did earn a total income of over P6.8 million with 88 percent coming from well drilling projects and the rest coming from leak detection services and other miscellaneous income.

Despite the declared total income, more than P5 million of the same remained uncollected as of Dec. 31, 2010 because only 16 percent or P958,110 was actually collected during the year.

The COA report noted that well drilling is also a source of income of the LWUA before the creation of LCI in July and August 2009.

“In effect, there could be an implication that LCI is just an extension of LWUA. There were also instances where the equipment of LWUA was utilized in the well drilling projects at no cost to LCI.”

“Without any other program or projects undertaken separate and distinct from that of LWUA and geared towards the attainment of its vision, mission and the primary purpose for which it was created, the necessity of the creation of LCI may be an issue.”

P18.59-M losses

COA said that for 2010, the income statement of LCI showed a total income of P6.83 million and total expenditures of P25 million, thereby incurring a net loss of P18.50 million.

The COA report said LCI’s extraordinary expenses included personal services like payments of incentive allowances, Representation and Transportation Allowance (RATA), per diem and other personnel benefits totaling P2,771,162.

LCI’s P22.5-million expenses included Maintenance and Other Operating Expenses (MOOE) but the audit revealed that P14.5 million or 65 percent of the total amount was spent for the payment of extraordinary expenses.

The COA report said the chairman of the Board of Directors of LCI received P1.6 million while its five directors received a total of more than P6 million.

The vice chairman and chief executive officer was the second highest to be paid extraordinary expenses in the amount of P1.2 million while other officials — the president, three vice presidents and six department heads — received more or less P500,000.

The COA report said there were no employees hired by LCI during the year, hence no salaries and wages were paid because LWUA employees are authorized to initially man the operation of the attached agency.

For professional services, state auditors said only P3.5 million or 16 percent of the total MOOE were payments related to the well drilling projects.

“While expenses for professional services could be directly considered as income generating activity for attaining LCI’s corporate purposes and objectives, the same could not be said for the extraordinary and miscellaneous expenses incurred,” the COA report said.

“Considering the limited funds by which LCI operates and since these were investments made by LWUA, LCI management should have taken judicious effort to do away with the extraordinary expenses which were not necessary in the attainment of its corporate objectives.”

Express Savings Bank Inc.

The COA also reported that LCI’s funds were deposited in a non-government depository bank, which is a violation of the rules set by the Department of Finance (DOF).

LCI funds were deposited at the Laguna-based Express Savings Bank Inc. (ESBI), the same bank where LWUA unlawfully invested P780 million.

The investment to ESBI prompted the ombudsman to dismiss from the service LWUA Board of Trustees chairman Prospero Pichay and two other ranking officials.

Acting Ombudsman Orlando Casimiro said the anti-graft agency found the former lawmaker guilty of the administrative offense of grave misconduct for misusing government funds.

As penalty, Pichay, former congressman of Surigao del Sur; acting administrator Daniel Landingin and acting deputy administrator Wilfredo Feleo were also stripped of their benefits and declared perpetually disqualified from holding public office.

The COA report said DOF Department Order No. 27-05 dated Dec. 9, 2005 prohibits any government agency, including government owned or controlled corporations (GOCCs), from depositing government funds in any other banks except government depository banks.

As of Dec. 31, 2011, state auditors said LCI had a P5.2-million deposit in ESBI which should be closed in accordance with existing rules.

The LCI management nevertheless offered some explanations to COA’s findings in an effort to justify its operational errors or deficiencies.

On the issue of merely duplicating the functions of LWUA, LCI said it is only on its first year of operation anyway and “such situation will vary in the succeeding years.”

LCI said it is also incurring lower overhead costs in well drilling than when the activity was undertaken by LWUA and is utilizing LWUA’s drilling equipment at no cost to LCI because LCI considered the same as an assistance of a parent corporation to its subsidiary.

On the issue of net losses and high extraordinary expenses incurred in 2010, the COA report said the LCI management commented that it has already complied with the directive from higher authorities regarding the suspension of the payment of the allowances and other benefits to the members of LCI Board effective September 2010.

And on the issue of its deposits with ESBI, LCI said its mother corporation (LWUA) has had substantial investments in ESBI and that LWUA is represented in its Board of Directors and its acting president is the acting deputy administrator for investment and financial services of LWUA.