History of the NAO

The National Audit Office is the successor of the Department of Audit that fell under the responsibility of the Ministry of Finance up to July 1997. The Office of the Auditor General and the National Audit Office were set up by virtue of the Auditor General and National Audit Office Act, 1997, as well as relevant amendments to the Constitution of Malta.

Following the coming into force of these important legislative amendments on 25 July 1997 the National Audit Office obtained a clear mandate and empowerment to encourage accountability of public officers and to contribute towards better management of public funds and resources.

Developments necessitating change

The constitutional and legislative provisos established on the attainment of Independence became somewhat outdated as Malta transformed itself from a colony to a modern nation state. Economic growth and political developments translated into increased public expenditure and revenue as the process of growth and diversification of the Maltese economy gathered momentum. Subsequently, such developments led to increased decentralisation and autonomy of line function departments, which had to be counterbalanced with enhanced accountability. The need for more stringent controls relating to the management of public funds and a more effective state audit function became indispensable.

Setting up of the Public Accounts Committee

Within this emerging scenario, it was felt necessary to establish a mechanism which facilitated and encouraged discussion and corrective measures to be taken on audit issues through the House of Representatives. This was finally established in March 1995 in the form of the Parliamentary Public Accounts Committee (PAC). This was carried out by means of an amendment, unanimously approved by Parliament, to Standing Orders of the House of Representatives.

The Committee consists of seven members of Parliament, four from the Government side and three from the Opposition. The Chairman of the Committee is nominated by the Leader of the Opposition after consultation with the Leader of the House of Representatives. The PAC has the power, inter alia, to examine and act on reports made by the Auditor General and has the right to request the Auditor General to submit memoranda on any matter, provided that this is requested by at least three out of the seven members of the Committee. Moreover, the Committee is empowered to report and make recommendations thereon to Parliament.

The PAC represented an important development to the concept of accountability of the Executive and Legislative branches of Government to Parliament. In addition, the PAC served as a catalyst to strengthen the state audit function in Malta.

Establishment of the National Audit Office

There was only one logical evolution to the developments outlined above – the establishment of the National Audit Office. In 1997, Parliament unanimously voted for constitutional amendments and ad hoc legislation enhancing and regulating the state audit function in Malta.

The revised legal framework sought to enhance and consolidate the independence of the state audit function. This was primarily achieved by establishing that the Auditor General be an officer of Parliament. Furthermore, the dependence on the Ministry of Finance and the Office of the Prime Minister for resourcing the Office was removed. The NAO Act further empowered the Auditor General to recruit staff for the Office under conditions that he/she decided upon. 

The Constitution recognised that the independence of the state audit function would be strengthened and given more credibility if the Auditor General and the Deputy Auditor General were appointed by the President acting in accordance with a resolution of the House of Representatives supported by the votes of not less than two thirds of all the members in the House. This procedure ensures that the Auditor General and his Deputy are accepted as politically unbiased figures. In fact, the appointments of both the present Auditor General and Deputy Auditor General won the unanimous support of the House of Representatives.

New provisions in state audit legislation

The independence of the NAO has been further guaranteed though new funding arrangements. The annual estimates considered necessary for the running of the NAO are reviewed by the National Audit Office Accounts Committee prior to consideration and approval by Parliament. Members on this Committee include the Leader of the House of Representatives and the Chairman of the Public Accounts Committee. The Act also provides for the accountability of the Office. The Committee is obliged to appoint private sector auditors to audit the accounts of the NAO.

To enhance the effectiveness of the audit reports the NAO Act stipulates that the Auditor General is to submit his annual report to the Speaker of the House not later than one year following the closing of the financial year under review. The Auditor General can also submit other reports to the Speaker of the House on any other issue of significance, materiality or value for money nature. All reports are tabled in the House of Representatives by the Speaker of the House.

Although previous legislative provisions did not exclude Value for Money (also referred to as Performance) audits, these were, however, given increased prominence with the new legislation. Value for Money audits are a natural consequence of the increased demands by the public for more economic, efficient and effective public service operations. Such demands for value for money and accountability in public service operations are catered for in the Act. The mandate had been extended to cover more clearly all entities holding, administering or using, directly or indirectly, public funds. The philosophy behind such an extension is that in a democracy the citizen is entitled to have a fair and independent appraisal as to whether all public funds are being expended appropriately and judiciously.

Standards

The NAO uses the International Auditing Standards of Supreme Audit Institutions (ISSAIs) as guidelines of practices to be followed in the conduct of its audits. The Office has also developed, and continues to develop, more detailed auditing guidelines in line with these International Auditing Standards.

Challenges facing NAO

The remodelling and strengthening of the state audit function had proved to be timely and of increased significance in view of Malta’s accession to the European Union on 1st May 2004. Such membership carries the obligation to ensure that EU funds transferred to/from Malta are properly controlled and accounted for.

As already highlighted, the principal function of state audit is to promote accountability, proprietary and best practice in government operations and activities and to provide independent and objective analysis, assurances and advice to Parliament on the way Treasury, government departments and other entities in receipt of public funds use and account for taxpayers’ monies. Consequently, one of the main challenges faced by the NAO is to continuously ensure that it has adequately trained professional staff to enable the Office to carry out its constitutional mandate in the most effective and efficient. This necessitates a carefully planned recruitment programme as well as the provision of ongoing training opportunities, organised within and outside the NAO, to ensure that staff can further their respective professional competencies and skills. This should hopefully enable the Office to attract other professionals to seek a satisfying career in state auditing.

The extensive challenges faced by the National Audit Office in its efforts to duly fulfil its constitutional mandate have to be seen within the context of the need to continuously renew Malta’s governing institutions, improve public services and stabilise public finances, adapt to the globalised economic environment and oversee the economic, efficient and effective use of EU funding opportunities. It is felt that the National Audit Office has a key role in attaining such strategic objectives and to ensure the country’s continued sustainable development.

International Relations

The NAO gives due importance to its international relations, especially with other Supreme Audit Institutions. The NAO, within its limited resources, views the participation in state auditing-related international events as a fundamental way of sharing and learning from the experiences of our overseas colleagues. We view such an approach as a fundamental way of counterbalancing an ‘insular mentality’ usually associated with small island states.

The NAO is participating in various international working groups. These include several Working Groups within the EU Member State Supreme Audit Institutions network (so-called Contact Committee), the European Organisation of Supreme Audit Institutions (EUROSAI) Working Group on Good Practices Guide on Audit Quality, and, the EUROSAI, Working Group for Environmental audit.

Whenever requested, NAO’s views are also submitted on standards, guidelines, and other studies undertaken by INTOSAI, EUROSAI and other international audit institutions.

Conclusion

The democratic process demands that the achievement of proper financial reporting, accountability, propriety and value for money in public administration need to be insisted upon and followed up constantly and vigorously. The taxpayer deserves nothing less. Through the Constitutional and legislative provisions referred to above, the NAO has the necessary mandate and empowerment to execute in an appropriate manner its primary function of serving as the guardian of the public purse and agent for change conducive to achieving excellence in the public sector for the benefit and in the interest of all Maltese citizens.