Report by the Auditor General on the Public Accounts 2016

Today, the Auditor General Mr Charles Deguara, presented to the Hon. Speaker of the House of Representatives, the
Annual Audit Report on the Public Accounts for 2016. It comprises 22 reports on the operations of various Ministries,
Departments and Government entities, including an analysis of the Financial Report 2016. Separate audit opinions,
on the financial and compliance audits, were published. Some of the main observations are reported hereunder.

Following a detailed analysis of the Financial Report, the National Audit Office (NAO) noted that:

• Letters of Comfort and Bank Guarantees, being potential dues by Government, reached almost €1.5 billion;
• substantial excess of expenditure over budgeted figures was once again reported;
• outstanding advances issued in favour of third parties, totalling approximately €49.4 million, will continue to be repaid out of public funds;
• following the enactment of the Government Borrowing and Public Debt Management Act in July 2017, a number of measures will be implemented thereby introducing a risk management framework; and
• Government’s strategy to prepare for the full implementation within Central Government of accrual accounting necessitated, amongst others, the introduction of a Corporate Financial Management System, which is estimated to cost €11.6 million, out of which €10.87 million are eligible for European funds.

Though disbursements from public funds on Church Schools almost doubled over a 10-year period, from €32 million to €63 million, it was not possible for the NAO to verify whether such expenditure was duly authorised and properly accounted for due to lack of audit trail.

From a physical inspection carried out in a number of Gozo Schools it was noted that there was lack of control over inventory items.

An audit on the collection of annual circulation licence fees by Transport Malta, and the procedures for the collection of dues in relation to contravention tickets implemented by the Local Enforcement System Agency, revealed a number of control weaknesses in relation to the latter, concerning chasing of debts. The NAO is concerned that temporary lifting of contravention tickets is done by the external supplier, and that the Agency is not in a position to extract the report on such instances itself.

The NAO is satisfied that procedures in relation to the tendering process of selected projects carried out by the
Grand Harbour Regeneration Corporation were in place and in their majority adhered to.

Significant delays were noted in the transfer of funds emanating from fees collected on behalf of Government by the Malta Communications Authority, apart from lack of independent verifications.

Although the Central Procurement and Supplies Unit within the Ministry for Energy and Health adopts cost efficient measures in relation to Medicines and Surgical Materials expenditure, the actual consumption depends entirely on requests generated from different entities, which are not ultimately held accountable for a pre-established budgetary provision.

No major changes were made to the terms and conditions of the contract for the management of the car park at Mater Dei Hospital which was effective from 1 August 2007. The main shortcomings emanating from the service concession contract split were not addressed and consequently the Government continued to lose substantial amounts of revenue.

While the Government is paying significant amounts of money to film production companies by way of cash rebates with very good results in so far as film production in Malta is concerned, verifications carried out at the Malta Film Commission concluded that effective controls are not in place to ensure that income attributable to Government in the form of tax payable is actually paid in full.

The main concern identified from an audit at the Malta Air Traffic Services Ltd. related to the complete reliance on an intergovernmental organisation, namely the Eurocontrol, for the estimation and collection of income associated to the provision of air navigation services.

From verifications carried out during an audit of expenditure at the Detention Service within the Ministry for Home Affairs and National Security, it transpired that internal controls in the payroll process were lacking, indicating that there was minimal monitoring to ensure effective management of human resources.

Although there was a net surplus position at the end of 2016, the Malta Police General Fund was still in an unstable financial situation.

A review of the 2016 Arrears of Revenue Return submitted by Ministries/Departments revealed that 59% of the
reported gross arrears of approximately €3 billion, were deemed to be statute-barred. A further €177 million were under contestation. Over a year, the unpaid net balance as at 31 January 2017 increased by 29%.