Saunders: Nothing to do with performance of the Authority

Member of Parliament for West Kingstown and former Manager of the Central Water and Sewerage Authority (CWSA) Daniel Cummings has asked what could have happened for the financial situation of the CWSA to “change so drastically over one year.”{{more}}

Cummings stated that according to the financial statements of the Authority, the CWSA made a profit of $5 million in the 2010 financial year, while in 2011, the company recorded a loss of $3.4 million.

“$8.4 million in one year! All yo take warning! This is not unlike what happened in the National Commercial Bank,” Cummings said, as he spoke on the New Times radio program on Nice Radio on Wednesday.

“You tell me what happened in this country that would cause the CWSA to change so drastically. You only have to look at the number of persons who are disconnected, the increased number of disconnections in the period under review, to understand one of the reasons why revenue is declining, despite the fact that you have a constant addition of consumers,” Cummings said.

Cummings said smaller consumers should be encouraged to pay, rather than they being disconnected.

“The declining revenue suggests that they are using disconnections in too rampant a manner, and they need to be more humane in their operations,… use some innovative methods to encourage people to make little payments, … however they can, … rather than this wholesale, wanton, disconnection,” Cummings declared.

“On the other hand, there are other categories of consumers who can pay and who should be disconnected, chief among them, the Government and certain bigger companies!” Cummings declared.

“Those are the ones that you keep on their toes, because one, they are in a better position to pay, and two they can’t survive without the water.

“While the CWSA moved from $5 million in the black to $3 million in the red, … in one year, a loss of $8.4 million. And out of that, government owes the CWSA $3.7 million,” Cummings said.

Earlier this year, it was disclosed that the government owed the CWSA $3.5 million as a result of late payment of the annual subvention of $2.5 million.

When contacted, CEO of the CWSA Garth Saunders told SEARCHLIGHT that the loss in profit of $3.4 million for the 2010-2011 financial year has “absolutely nothing to do with the level of the CWSA’s receivables or funds owed by its customers, whether domestic, commercial or government”.

Saunders went into detail, explaining what he says is a sometimes hard to grasp concept of the distinction between cash and profit.

“A loss of $3 million declared on a company’s financial statements does not mean that the company lost $3 million of its cash. The $3 million loss simply means that the Company’s total expenses exceeded its total sales (or total revenue) by $3 million. This also assumes that all revenue was collected,” Saunders stated.

Saunders also explained the CWSA’s “seemingly drastic turn around from a profit of $5 million in 2009-2010 to a loss of $3.4 million in 2010-2011”.

“Any declaration that the CWSA lost $8.4 million dollars in one year without noting the explanations given on the same page (of the financial statements) must be regarded as an inadvertent oversight,” the CEO said.

The financial statements of the CWSA for the year ended June 30, 2011, were laid in the House of Assembly on Monday, March 26, by Minister of Health, Wellness and the Environment, Clayton Burgin.

Saunders explained that the 2010 financial statements specifically noted that the $5 million “profit” came about because of the addition of $3 million by its Auditors of what is referred to as a “foreign exchange gain”, while the 2011 statement’s loss of $3.4 million came about because of a corresponding deduction of $3.5 million by the Auditors.

“Simply put, the CWSA’s auditors with the stroke of a pen and more importantly, very carefully following their international accounting standards accounted for $6.5 million of the $8.5 million change in the CWSA’s net profit position,” the CEO said.

He said that the remaining $2 million difference came about as a result of increased costs associated with its response to the recent natural disasters, bad debt write-offs and increased solid waste collection costs.

Saunders further explained that this area of foreign exchange gain or loss in financial statements can “easily be a trap for the unwary, or non-accountants” like himself, who may not take the time to understand the concept.

He explained that because the CWSA’s loans are denominated in Euros, its EC $18 million loan balance suffers an increase in value of EC$3 million when the value of the Euro increases from 3.50 to 4.20 over a period of one year. This means that the CWSA at the end of its financial year has to find 3 million extra dollars to service its loans.

“Similarly, the CWSA recorded a loss of $2.2 million in 2008 which in one year was converted to a profit of $6.9 million in 2009, an improvement of $9.1 million in one year. These currency fluctuations are completely outside the control of the CWSA and had nothing to do with the management or the performance of the Authority,” he said.