Financial sustainability & going concern of Gozo Channel Co were very critical – NAO

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Financial sustainability & going concern of Gozo Channel Co were very critical - NAOToday, the Auditor General presented to the Deputy Speaker of the House of Representatives, the Annual Audit Report on the Public Accounts for 2013. It comprises 22 reports on the operations of various Ministries, Departments and other Government entities, including an analysis of the Financial Report 2013.

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

“The financial sustainability and going concern of Gozo Channel Company were very critical. A weak control environment prevailed within a number of areas, including several expired contracts, weak budgetary control, inefficient utilisation of personnel, lack of control on overtime, and lack of synergy between the Management team, as well as between the various Units within the Company.”

Some of the main observations are reported hereunder.

• Letters of Comfort and Bank Guarantees, constituting Contingent Liabilities for Government, reached circa €1,258 million;

• substantial excess of actual over budgeted figures of various items of Expenditure was once again reported, these being similar to those reported last year; and

• following the enactment of the new legislation governing Government’s borrowing and public debt management, a number of measures will be implemented thereby introducing a risk management framework, together with a code-of-conduct and conflict-of-interest rules.

All Ministries/Departments submitted the Arrears of Revenue Return for 2013. Similar to previous years, a review of these returns revealed several issues in the collectability of outstanding balances.

A revenue audit at Heritage Malta revealed a weak internal control system, leaving ample room for abuse and other undetected shortcomings. The concerns include no independent ticket scanning, high level of dependence on the integrity of front office staff and significant number of cancellations not adequately supported by documentation.

The University of Malta and Junior College ended the year with a Capital Expenditure adverse variance of €1,275,271 and €2,075,271 when comparing the actual to the original and revised budgets respectively.

Cash flow shortfalls were being temporarily funded by delaying amounts payable to the Inland Revenue, in respect of income tax collected from employees’ salaries and National Insurance Contributions.

A review of expenditure of the Ministry for Sustainable Development, the Environment and Climate Change, revealed lack of sufficient audit trail and documentation. Other key shortcomings consisted of a retrospective approval for a variation order and non-adherence to Procurement Regulations with respect to consultancy services.

An analysis of the expenditure incurred by St. Vincent de Paul Residence within the Elderly and Community Care Department, revealed that procurement was not always compliant with standing regulations. Food items were often procured following repetitive calls for quotations. Substantial payments for Operational and Maintenance Expenses, related to invoices outstanding from the previous year.

Minimal action was taken by VAT Department to recoup outstanding Eco-Contributions. An overview of the collection process of this tax, also revealed a discrepancy between payments received compared with income recorded in the Government’s Departmental Accounting System. Shortcomings in the investigation process were also noted by the NAO

The significant changes to the original contractual agreement of the Car Park and Traffic Management and External Security Services at Mater Dei Hospital led to considerable loss of revenue to Government, amounting to over one million euro per year. Another major concern related to the lack of control on cleaning services’ expenditure, on which the hospital paid close to six million euro in 2013, the Report said.

The NAO noted that considering the substantial amount of funds allocated by Government to Local Councils, exceeding 31 million euro, as well as the fact that the five Regional Committees generate around another eight million euro, this year for the first time ever the NAO deemed it appropriate to issue a separate Report dedicated solely and exclusively to the workings of Local Government.

The NAO said that following a review of the Financial Statements, as well as the relative Management Letters prepared by Local Government Auditors (LGAs) for Local Councils and Regional Committees, a number of concerns and weaknesses prevailed from previous years and have been reported in this Report.

The main common shortcomings that were encountered in the Management Letters included:

a. Accounting records not properly updated, with the result that the Financial Statements drawn up, do not reflect a true and fair view of the actual financial situation.

b. Income and expenditure accounted for on cash rather than accrual basis.

c. Payments made not substantiated by a proper invoice and/or fiscal receipt.

d. Fixed Assets Register either lacks necessary details or not maintained at all.

e. Budgeted expenditure for certain categories of expenditure exceeded.

f. Procurement not in line with the pertinent regulations.

In addition, similar to the preceding period, none of the nine Joint Committees submitted the respective audited Financial Statements covering the year under review.

Furthermore, the NAO said, both the Central and the North Joint Committees also failed to file the Financial Statements for the year ended 31 December 2011, with the latter not even submitting those covering the preceding year. Since these entities were entrusted with the collection of public funds, it is felt that such situation is unacceptable.

A copy of both Reports will be available in real time on NAO website through the following link: www.nao.gov.mt as soon as it is presented in the House of Representatives.

Photograph: DOI/Martin Attard

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