The Court of Auditors has looked into Águas de Portugal’s accounts for the period between 2012 and the first half of 2014 and concluded that "85% of the directly awarded contracts examined have irregularities and insufficiencies."
The audit report has only just been published despite the closing period being nearly three years ago. The Court of Auditors indicated that "following a request from the Parliament," 81 direct procurement procedures issued by 23 companies in the Águas de Portugal group were examined, corresponding to €9.7 million."
The damning audit showed that an unbelievable 85% of direct contracts issued by group companies, i.e. contracts that did not go out to tender, were irregular in the way management decided which supplier would get the work - the inference being that backhanders, corruption and poor value for money interfered with the correct running of the business..
The main irregularities concern the grounds for using direct contract awards and hence the removal of any competition, according to the auditors, who highlighted the lack of legal formalities, the absence of records, the absence of legally required documentation and the absence of any legally required reasoning.
Of the sample of 81 cases that the auditors examined, they found that five cases were 'reasonably awarded' but that 14 cases had no grounds at all for awarding the contract and that in the remaining 50 cases “there were irregularities or shortcomings” in at least one of the protocols necessary when awarding contracts.
Regarding the non-compliance with the competition principle, the audit report emphasises "the extreme case of the repeatedly contracting, for more than 15 years, the same company for the provision of IT consultancy services," in clear detriment to the public interest.
Looking at a service company that developed some financial software for Águas de Portugal and other companies in the group, this happened, "without the processes showing justification for the choice of direct award of the contract."
The IT company was comfortably embedded: contracted to carry out economic and financial feasibility studies, to prepare consolidated business plans, to produce scenarios to update those plans of the group, to evaluate the companies of the group and to prepare studies and analyses and also to carry out day-to-day management procedures for the companies and to prepare annual budgets. All of this "hampered the possible supply of the same services by other competing companies."
According to the auditors, this direct-employment IT contract "involved the reliance of a public group on a single private company for the performance of recurring tasks of day-to-day management and hence the removal of the competition principle that is expressly required."
The Court recommended to the boards of directors of Águas de Portugal companies that in future they adhered to the rules of the Public Procurement Code and undertake, wherever possible, competitive procurement procedures.
The Court of Auditors also has set a period of 60 days for the audited companies and the Ministry of Finance to "inform the Court in writing of the measures to be taken to comply with its recommendations" and a period of 180 days for them to explain which measures had been taken and the results obtained.
The auditors also decided to show which directors were responsible for ignoring the easy-to-follow Public Procurement Code. There clearly have been series violations and there are cases that could be pinned down to individual 'negligence.'
This audit conducted between 2012 and the first half of 2014 only looked at a representative sample of the contracts issued by the water group. Had this been a full audit, the percentage of directly awarded contracts would be the same but the amount of money involved would have been significantly higher.
Rather conveniently, ten of the companies that supplied the Águas de Portugal group and were included in the audit, have mysteriously ceased trading.
The Ministry of Finance is guilty of poor oversight and the Public Prosecutor now must take this report and investigate those responsible, seize their bank accounts and assets and list the criminal charges resulting from this appalling situation at a State company that clearly is riddled with corruption.
How this business has been allowed simply to ignore sizeable chunks of legislation, designed to protect the taxpayer from being ripped-off, remains to be explained but the Ministry of Finance now is under direct pressure to replace the board of directors and ensure the Public Prosecution Service has all available evidence at its disposal.
Questions also must be asked of the group’s external auditor Ernst & Young and of the Águas de Portugal Chairman, João Nuno Marques de Carvalho Mendes who now must take direct action to sack those incapable of following the procurement rules.