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Lopez foundation rips off gov’t in La Mesa deal—audit

• Written by  Chito Lozada
• Friday, 12 April 2013 00:00

MWSS ends up with empty bag in agreement 
The supposed civic arm of the Lopez Group’s ABS-CBN Corp., ABS-CBN Foundation Inc. (AFI) had appropriated the La Mesa Ecopark operations as its own, denying the Metropolitan Waterworks and Sewerage System (MWSS) its share in a 2001 concession signed between both and the local government of Quezon City.
According to a 2011 report of the Commission on Audit (CoA), state auditors found deficiencies in both the memorandum of agreement (MoA) and memorandum of understanding (MoU) signed among the three for the operation of the ecopark which is also known as the La Mesa Resort Zone.
Under the MoA, a profit sharing of 40 percent of net income for MWSS, 30 percent for AFI and 30 percent for the Quezon City government was agreed on.
The CoA audit showed from 2004 to June 30, 2009, the La Mesa Ecopark operation earned P22 million in net income. “Based on the audited financial statements of the La Mesa Ecopark, the total income for the period 2005 to June 2009 was P20.8 million, hence the share of MWSS should be P8,3 million subject to income tax.
The CoA report, however, stated that the 40 percent share of MWSS on the net income after tax of the project “has not been remitted.”
The CoA also noted that AFI, which is headed by Gina Lopez, a member of the media business clan, had managed to obtain a greater share in the venture than either the MWSS or the QC government, since AFI deducts 15 percent from the gross revenue of the ecopark operations as management fee.
“In managing and operating the La Mesa Ecopark, AFI deducts 15 percent from the gross revenue thereof as management fees. However, no supporting document was presented to show approval by either the MWSS Board of Trustees or La Mesa Executive Board on the 15 percent management fee being charged by the AFI,” according to the CoA.
“Furthermore, with AFI charging another 15 percent management fee on gross revenue over and above the existing profit-sharing of 40 percent as MWSS share, 30 percent each for AFI and LGQC, it would now appear that AFI has a greater share in the revenues and income derived from the operations of the La Mesa Resort Zone,” according to the report.
In the ABS-CBN website, it was stated that “all income generated by La Mesa Ecopark is utilized for the continuous preservation and protection of La Mesa Watershed.”
CoA said a review of the MoU dated Nov. 23, 2001 and MoA (undated) executed by MWSS with AFI and the Local Government of Quezon City had several deficiencies.
It also cited conflicting provisions in the MoU and the MoA signed among the three relative to the Environmental Trust Fund (ETF).
“Section 1 of the MoA provides for the creation at La Mesa Resort Zone – Executive Committee (LMRZ-EC) composed of two representatives each from MWSS, AFI, and the QC government in which the committee shall take the stewardship of the Environmental Trust Fund (ETF) under the control of the MWSS board of trustees (BOT) and under the supervision of the La Mesa Executive Board (LMEB).
“However, under Section 1.a.v of Article IV of the MoU– Management and Operations Framework-the LMEB shall take stewardship and control of the ETF,” according to the report.
The CoA required the MWSS board to clearly designate the stewardship and control of the Environmental Trust Fund.
It added that section 1.2 of the MoA also provided that the LMRZ-EC will be tasked to approve and supervise the implementation of the La Mesa Resort Framework Plan and all programs and plans relative to the operation of the La Mesa Resort Zone. “However, no committee was formed since the inception of the contract,” according to the CoA.
The CoA recommended the creation of the LMRZ-EC that will formulate policies regarding the LMRZ aside from other functions and responsibilities stated in the MoA.
“Upon creation, members of the proposed body should convene regularly to address and assess the operations and concern of the LMRZ/La Mesa Ecopark,” it said.
The CoA also cited section 6 of the MoA that required all funds generated from the operation of the LMRZ should be deposited under a special account for the Environmental Trust Fund (ETF) to be opened in the name of MWSS, AFI and the Quezon City government “and any or all transactions or withdrawal involving the ETF shall be considered approved if signed and approved by at least two official representatives or signatories of either MWSS and AFI, or MWSS and LGQC.”
CoA said, however, documents showed that all accounts were opened in the name of AFI only and “transactions/withdrawals were made without the consent of MWSS.”
The CoA said that the parties involved in the agreement should comply with the provisions of section 6 of the MoA “to maintain sound internal controls by opening an account in the name of the three contracting parties.”
“All transactions shall be authorized with the consent of MWSS representative,” the CoA added.
It also cited violations of section 22 of the MoA that mentioned four requisites for the agreement to be effective which were that the MoA shall be signed by the parties; approved by proper authorities; and reviewed by the Office of the Government Corporate Council (OGCC) and ratified by the QC Sanggunian.
“Requisites 2 and 4 were not complied with. There was no MWSS resolution approving the MoA as per certification by the Board Secretariat of MWSS. Also, the contract was not ratified by the QC Sanggunian as confirmed by Mr. Francisco Mallillin to IAD Manager Bienvenido A. Sarmiento based on the report of Virgilio P. Matel, Officer-in-Charge of the Internal Audit Department during that time,” the CoA said.
The CoA said the MWSS should require the post facto approval and ratification of the MoA to enable the agreement to be fully effective.
“Otherwise, the MoA could be considered null and void,” it added.
The CoA also noted that the 40 percent share in the net income generated from La Mesa Ecopark operation (La Mesa Resort Zone) was not recorded in the books of the MWSS pursuant to section 11 of the MoA among the parties involved.
“Section 11 of the MoA requires that financial report shall be prepared and submitted by the AFI to the La Mesa Executive Board (LMEB) from its initial operation ending June 30, 2005 and the annual financial report thereafter and the income shall be distributed among the parties accordingly,” CoA added.
The AFI, however, failed to submit the annual financial report as required in the MiA.
“Finally, on Nov. 5, 2009, the Internal Audit Department (IAD) of MWSS received the audited Financial Statements of La Mesa Ecopark/Watershed Operation covering the period 2004 to June 30, 2009 or a period of five years,” it said.
The CoA noted that based on financial report, included in the direct expenses was the 15 percent management fee charged by the AFI amounting to P20.5 million for five and a half years “whereas the 40 percent  share of MWSS on the net income after tax has not been remitted as of today.”
The CoA tasked the MWSS to require the AFI to submit the annual financial report and remit the corresponding share of income to the MWSS.
“The books of account of the La Mesa Ecopark should be made available to the duly authorized representative of MWSS as required under Section 12 of the MoA,” it added.