Much of Camden's water supply cannot be accounted for by the company that runs the system, a state audit has found. The company also has collected millions in unapproved tax dollars and failed to protect the water from contamination, the state comptroller said.

The loss of 45 percent of the supply provided by Camden's largest water operator - due to leakage, overflow, meter inaccuracies, and billing errors - is more typical of systems in developing nations, according to the audit released yesterday by the independent Office of the State Comptroller. It exceeds the 10 percent allowed in the 1999 contract with Camden, and results in a loss to the city of $1.7 million annually.

Camden residents have long complained of brown tap water. Although state environmental inspectors found that water quality meets minimum standards, they said the potential for contamination was grave.

The operator, United Water, based in Bergen County, could not provide paperwork to prove that it had done mandated inspections, and failed to maintain vents that prevent insects and animals from entering the water supply, according to the audit.

The city and its state overseers, meanwhile, did not enforce the contract because officials knew little about its provisions, the audit said.

United Water said it disputed many of the findings, and said the Comptroller's Office lacked trained water technicians to review its operations. It said water quality has never been at risk.

"If in testing of the water, we found water that didn't meet state and [federal Environmental Protection Agency] standards, we would immediately take action, investigate it, and correct it, so there's no drinking-quality issue at stake," said company spokeswoman Jane LeCapitaine.

"If there's things we can do or change, we'll do that. Right now, we're pretty shocked by what we're seeing here."

Under its agreement, signed when United Water had different ownership and was called U.S. Water, the city was to pay $178 million for water service over the 20-year contract.

But the city has paid millions more than it anticipated because of extra charges that were never legally approved by elected officials.

As a result of the audit, Camden is now seeking $29 million in compensation from United Water. Camden's interim state-appointed chief operating officer, Alberta Hyche, did not return a request for comment.

LeCapitaine said the company had not been given a chance to fully respond to the "finer points" of the report.

United Water is not to blame for the $1.7 million in lost water, because the problem is due to aging and leaking pipes that Camden cannot afford to fix, LaCapitaine said.

"My sense is this is a misunderstanding of the contract obligations, scope of services, and the operation of the facilities," she said.

The company has increased the number of meters it reads and uses new radio technology, LeCapitaine said. There has been a 90 percent drop in customer complaints, the company said.

In a letter that responded to a draft of the audit and was included in the comptroller's final findings, United Water said that it has been a good corporate citizen and cited, as an example, tickets to the Adventure Aquarium it donated to city children.

It said the water system was properly inspected and that improvements - which the contract says the city must fund - were recommended.

LeCapitaine attributed some of the problems, such as problems with record-keeping, to the city's paperwork issues.

Water rates have risen dramatically in Camden this year after City Council approved increases.

The comptroller's audit was prompted by a request by the state Department of Treasury, which has had extensive fiscal oversight in state-controlled Camden since the contract with United Water was signed in 1999.

United Water, a major contributor to New Jersey politicians of both parties, provides service to about 60 percent of the city. It is a subsidiary of an international corporation, Suez Environnement, based in Paris.

Several of the audit's findings regarding contract mismanagement have been disputed by the company:

Seventy percent of Camden customers have uncollected balances at least three months old, according to the audit, and since the company's account records are missing names and addresses, collection is impossible. Millions have been spent from the city's general fund to close the resulting deficit. United Water said that until recently, the city lacked a water shutoff plan for negligent customers, so it had no way to stem the losses.

State auditors could not locate 15 assets that were supposed to be maintained by United Water. Two that it did find, including a water treatment plant, were "left to rot." The company said it took over an antiquated system.

Nine different United Water reports dealing with maintenance and quality control were not filed to the city. The company said that communication with the city is regular and that reports are filed.

Twenty percent of the city's fire hydrants need to be replaced. The company said it has replaced 100 hydrants, and possibly 200, since 1999.

The company charged the city "administrative fees" not specified in the contract, though the work was subcontracted. Finding subcontractors is a service it provides and which should be compensated, the company said.

Water meters were not calibrated as mandated, leading to inaccurate charges of $1 million for service to public entities like the Camden County Jail. The charges were not due to calibration problems, United Water said.

United Water failed to refund $550,000 owed to city customers over the last decade. The company said it disagrees with this finding.

Camden has been under state control since 2002, and most of its budget is subsidized by the state, so any waste costs New Jersey taxpayers.

This is the third state audit in several weeks to show mismanagement in city government.

State politicians had said they planned to reform the city's governance before the new governor comes into office next month, but no bills have been proposed.

"There's blame to go around in almost every corner that we checked," Comptroller Matthew Boxer said yesterday.

"There are city officials who most directly did not fulfill their responsibilities . . . but there are state officials who, in theory, were to be responsible for exercising oversight."

Boxer said that if a city privatizes a basic municipal service, that doesn't mean it can cut the check and forget about it.

The contract with United Water was approved by local and state officials in 1998 amid considerable opposition and two lawsuits, including one by residents who collected a petition to put the privatization question on a ballot referendum. Both suits were dismissed.

Councilman Gilbert "Whip" Wilson, who opposed the privatization when he served on council in the 1990s, said the issues laid out in the audit were foreseen.

"I've had concerns about who's watching them, who's doing monitoring," Wilson said. "As far as I know, nobody was."

The city is now mandated to put together a correction action plan.

Contact staff writer Matt Katz
at 856-779-3919 or mkatz@phillynews.com.