Audit Office establishes misuse of 41 million lats of funds at Freeport of Riga, will turn to prosecutor’s office

RIGA - The activity of the Freeport of Riga management is not in line with good governance principles and the applicable laws and regulations, and as a result, there have been several violations and funding misuse cases, and the port’s incomes have not increased, the State Audit Office has concluded.
The Audit Office’s conclusions about the violations discovered during the SAO’s inspection have been reported to the Prosecutor General’s Office of the Republic of Latvia. The port has lost more than 41 million lats (58.3 million euros) altogether, according to the State Audit Office.

The Audit Office has established that a total of 595,000 lats of funds belonging to RFPA have been illegally spent on bonuses, gifts and health insurance for Board members. They are also said to have wrongly calculated benefits, holiday payments and sick-leave certificates.

745,000 lats was spent on natural and legal persons’ agreements for financial support as if signing contracts for purchasing advertisement services. Even though the procurement of such services was not planned, it was never coordinated and its possible affect on improving the port’s services and cargo handling was not evaluated.
The port has spent 145,000 lats on donations that do not comply with rules regarding financial squandering prevention acts.

Regulations state that goals are to be achieved using the least possible amount of financial resources. However, the Freeport of Riga management allotted 1.08 million lats for maintenance of wharves without determining the actual amount of money entrepreneurs had invested in accordance with their contracts.
The Freeport of Riga also sustained a loss of at least 403,000 lats as a result of the port administration’s illogical decisions and employees’ reluctance to complete their duties. Funds were spent on repairs of Varma icebreaker (354,000 lats), instead of investing them in the base capital of the ship’s owner.

The Freeport of Riga management relieved cruise ships from sanitary fees, thus failing to collect a total of 2.08 million lats in revenue, and did not recover debts due to the port in a total amount of 124,000 lats. The administration also did not use the funds provided by tugboat lease in order to collect rent fees of 501,000 lats.
The Freeport of Riga Board’s decisions during the Rigas juras linija insolvency process have created additional costs of at least 5.3 million lats. In the period between 2009-2011 the port was carrying out 22 million-lats construction work to expand Kundzinsala’s railway and docks without first holding a proper tender. The SAO, therefore, points at the possible economic risks that could be present because of this.

The port’s activities in regard to the territories it owns have not complied with relevant regulations as well. The port has also failed to provide equal, legal and open attitude toward all entrepreneurs operating in the port.
In contrast to regulations, the RFP included real-estate tax in the fees for dock rent in 2010 and 2011. As a result – rent fees were increased by 209,000 lats for 13 entrepreneurs.
The audit report, which offers an analysis of the Freeport of Riga management in the 2009-2011 period, also lists a number of other violations on the part of the management of the port. More than 20 different proposals on how to improve management of finances and provide equal and just attitude toward entrepreneurs have been submitted to RFPA.

State Audit Office ‘’honored’’ by the efforts of Freeport of Riga to refute audit findings
Auditor General Elita Krumina ironically admitted that the State Audit Office is ‘’honored’’ by the huge effort on the part of Freeport of Riga in attempting to refute the findings of the State Audit Office on violations the audit has revealed. “They [Freeport of Riga] hired a separate auditing firm, as well as involving attorneys to counter us. Seeing the huge efforts they have been putting into counter our findings, it is actually an honor,” Krumina said.
Krumina admitted that she is surprised by the activities of the Freeport of Riga in denying the specific violations ascertained by the State Audit Office.

Krumina admitted that such moves by the Freeport of Riga shows their impunity. “I cannot perceive this in any other way,’’ she said.

When the SA submitted its audit project to the port’s administration, 100 pages of objections were received in return. After a five-hour coordination meeting, objections remained for only three points. The auditor is not surprised by the fact that the port does not approve of the conclusions of the SA, even though it is odd that the port also does not trust the conclusions of the court and keeps to its position. “I do not mean the SA, but how can one mistrust a court’s conclusion, especially if one of the instances that reviewed this issue was the Supreme Court,” notes Krumina.

As an example she mentions violations in regard to tugboats. Violations included not allowing private companies to offer tugboat services. This was not accepted by the Latvian Port Transit and Logistics Council. However, the port decided that the council has no say in such matters. After several court instances it finally admitted that the council does have a word. “And this does not prevent the port from writing an appeal and saying that the SA incorrectly interprets information,” said the head auditor of the state.

Krumina believes that the assessment of the Freeport of Riga board members’ actions by state administration should come soon. The State Audit Office will support the prosecutor’s office in its investigation. However, Krumina points out that the public also has a need to follow the latest developments in this regard. The prosecutor’s office does not investigate quickly, explains Krumina.

The State Audit will be cooperating with the prosecutor’s office to the full extent in order for the institution to perform its own investigation. However, according to Krumina, the public will also be able to follow events as they unravel.
Krumina says that the report of the SA contains information about serious violations. This is why the ministries and Riga municipality should evaluate the professionalism of the port’s administration. Whether or not anyone should be punished, Krumina is reluctant to express her opinion on this matter, saying that this should be determined by law enforcement institutions. She did say, however, that the discovered violations are quite severe.

The auditor says the investigation at the port was a real bomb. She could not recall any similar cases to occur during her term as the head of the audit department.

Dombrovskis does not rule out that Freeport of Riga managers could be replaced
The Saeima Public Expenditure and Audit Committee has discussed the State Audit Office’s conclusions regarding the misuse of funds at the Freeport of Riga, agreeing to request Prime Minister Valdis Dombrovskis (Unity) to assess the activities of the port’s board. The committee had varied opinions on whom to address the request. The majority, however, decided to turn to the prime minister.

Saeima Public Expenditure and Audit Committee Chairwoman Elina Silina pointed out that it is necessary to assess the responsibility of the port’s board during the period audited by the State Audit Office and the board’s current activities because the port’s problems continue. The Economy Ministry, the Transport Ministry, the Environmental Protection and Regional Development Ministry and the Finance Ministry should coordinate their work on the port’s board, said Silina.
Silina explained that the Freeport of Riga Authority has acted inexpediently and possibly unlawfully, however, it is supervised by the port’s board, which should assume responsibility for these actions.

Prime Minister Valdis Dombrovskis (Unity) does not rule out that the management of the Freeport of Riga could be replaced in the wake of the State Audit Office’s report.
The Audit Office’s report is a serious signal that must be closely evaluated, Dombrovskis told reporters. If necessary, Freeport of Riga board members’ suitability will be reviewed.

Sprudzs to invite coalition to decide on replacing senior officials at Freeport of Riga
Environmental Protection and Regional Development Minister Edmunds Sprudzs (Reform Party) has decided to propose during next week’s coalition council meeting to make a decision on replacing senior officials at the Freeport of Riga.
During a meeting with Transport Minister Anrijs Matiss, the two ministers agreed that a meeting with state representatives serving on the port’s board should be organized to discuss a unified position on the matter. The minister pointed out that the audit report clearly points to systematic violations by the port’s authority, and the attitude shown by port officials is unacceptable.

The minister is confident that the coalition is prepared to support a more honest and transparent Freeport Authority and will be prepared to evaluate the responsibility of senior port officials. “I hope it will not only be the Reform Party fighting against the unethical actions of the port’s authority. We need the support of the whole coalition and a show of political will,” the minister said. According to the minister, the level of dishonesty at the port has reached shameless levels, and this must finally be put to an end.

Coalition partners criticize shady activities of Freeport of Riga management
Coalition partners have refrained from expressing a clear position in regard to possibly replacing the Freeport of Riga’s management and top officials, however, several politicians have openly criticized the way the port is run.
“We cannot allow for the saying about small-time fraudsters being put in jail, while big ones get promoted to be used in regard to Riga Free port,”  Sprudzs says. He calls officials of RFP to objectively evaluate the violations that were uncovered by the State Audit.

State officials should act fast in events of suspicion of illegal and non-transparent activities with state finances in order to prevent possible violations and further misuse of state finances, Sprudzs emphasizes.
“The Chairman of Riga City Council and his team – Andris Ameriks and Leonids Loginovs – are too carried away with calming society, saying that the situation is under control and that it would be wise to wait for the conclusion of law enforcement institutions. This is not what society deserves and expects. A similar situation is present with Rigas nami – when the same officials are being held responsible for the loss of more than 1.2 million lats. In the case of RFP, the point lies in more than 41 million lats of lost funds – which is something we cannot allow,” the minister believes.

According to him, Riga City Council should become an example of good management for every other municipality. This is why it is especially painful for society to see how Riga City Council neglects the clear and confirmed violations.
“Municipal representatives have been present at the Board of RFP for years, even when the SA inspection had uncovered the violations. With that, simple commentaries and reluctance to act can be understandable on a human level, but is politically pusillanimous,” the minister says.

“On top of that, it also ruins society’s trust not only in the municipality, but also in the state as a whole,” he says.
The head of Unity’s group at the Saeima, Dzintars Zakis, pointed out that Unity MPs are also very critical about this matter. In a statement, Unity points out that the violations established by the State Audit Office at the Freeport of Riga are extremely serious, and this is enough basis to evaluate the suitability of CEO Leonids Loginovs.

Meanwhile, the leader of All for Latvia!-For Fatherland and Freedom/LNNK (VL-TB/LNNK), Raivis Dzintars, said that his party is still willing to discuss this matter, but that he believes that its stance will be the same as the Reform Party’s.
On March 15, state representatives at Riga Free port (RFP) called an emergency meeting at the Transport Ministry. During this meeting, it was planned to decide on ending legal work relations with the current manager of the port – Leonids Loginovs.

Transport Ministry’s representative at the Board of RFP Dzineta Innusa said a letter will be written and sent to Loginovs with an initiative to call an emergency meeting and include three questions on its agenda.
It is planned to review the proposals prepared by State Audit’s inspection’s report, concluding work relations with Loginovs, as well as perform an internal investigation in order to determine RFP’s officials’ responsibility in regard to SA inspection’s uncovered violations, Transport Ministry reports.
Chairman Leonids Loginovs and his Deputy Aigars Pecaks have generous bonuses worth tens of thousands approved in the port’s budget.

The Board of RFP has approved the size of Loginovs’ bonus for results of the port’s activities – 48,075 lats. Loginovs’ monthly salary is 3,500 lats, plus a monthly bonus of 50 percent of his regular salary – a total of 21,000 lats this year. All together, including taxes, it seems that keeping Leonids Loginovs will cost the port 149,144 lats this year, according to documents obtained by “De facto” program of LTV.
The same bonuses are also planned for Loginovs’ Deputy – Aigars Pecaks. He will cost the port 116,834 lats this year, according to the port’s budget.

When asked whether the bonuses will be paid after the recent inspection at the port and the discovered violations there, members of the Board claim the decision has not yet been made. However, according to information from the program, bonuses will be paid either way. This is dictated by the employment contract.
“The manager’s salary was approved on the Board meeting of March 10, 1998. An employment contract was signed after that, but I am unable to say anything in this regard. I only know that the manager’s salary has not changed since 2001,” says the free port’s social relations director Anita Leiskalne.

Other port administration employees also receive bonuses. The State Audit has also noted that the bonus system lacks specific criteria. The service has also noted that the Board of the port, despite the requirement of the law, does not publish exact amounts of salaries on its official Web site. It is likely that the bonus system is not an instrument to motivate workers to do the best job they can do, but is merely an excuse to pay larger salaries.
Leiskalne does not hide that this bonus system exists and admits that there has not been a single month of her not receiving her bonus. When asked what the size of the bonus depends, Leiskalne said “on my immediate superior.”

Extraordinary Freeport of Riga board meeting on Loginovs scheduled for March 25
Freeport of Riga board chairman, Riga Vice-Mayor Andris Ameriks (Honor to Serve Riga) has received four board members’ applications calling for an extraordinary meeting of the port’s board to consider port CEO Leonids Loginovs’ suitability for the job; the board’s meeting will be held on March 25.

Ameriks has already called one meeting of the Freeport of Riga on March 25 to approve recommendations issued by the State Audit Office and a strategy for implementing the recommendations. Loginovs’ suitability will be discussed in a separate Freeport of Riga board meeting on March 25, which will take place about two hours before the other meeting.
The four state representatives on the Freeport of Riga board propose that the State Audit Office’s audit report be confirmed during the board meeting, as well as additional measures necessary to launch internal investigation for the evaluation of the port’s authority.

On the other hand, Riga City Council representatives on the board of the Freeport of Riga are much more tolerant. Freeport of Riga Authority board member and Riga Mayor Nils Usakovs (Harmony Center) will not support the dismissal of the port’s CEO Leonids Loginovs until a conclusion from the Prosecutor General’s Office is received regarding the State Audit Office’s findings.

The Freeport of Riga board may take a decision if at least six board members participate in the meeting, and at least five vote for a given motion. State representatives on the Freeport of Riga board are Inga Antane (Reform Party), representing the Environmental Protection and Regional Development Ministry, Eriks Skapars (Unity) who represents the Finance Ministry, Girts Greiskalns representing the Economy Ministry, and Dzineta Innusa representing the Transport Ministry. The Riga City Council’s representatives on the Freeport of Riga board are Ameriks, Usakovs and Riga councilmen Mihails Kameneckis and Vadims Jerosenko (both from Harmony Center).