The National Audit Office had highlighted in its annual report on local government for 2015 that auditors were unable to express an opinion on the financial statements of four local councils, yet two of these councils have attributed the main issues to past auditors not submitting their workings to said councils.

The National Audit Office (NAO) wrote in its report that due to the various shortcomings encountered, local government auditors could not express an opinion on the financial statements as presented by four Local Councils, namely Birgu, Kirkop, Mosta and Qrendi. This newsroom proceeded to contact all four councils for their comments on these shortcomings.

The NAO had said, about the Kirkop Council: “Given that no documentation substantiating the opening balance of €1,080,316 was provided for audit purposes, the testing that could be performed on deferred income was limited. Furthermore, the amount in question was not apportioned into its long and short-term portions as required by the applicable accounting standard”.

Kirkop Mayor Terence Agius was asked about this, and told The Malta Independent that there were projects undertaken with EU funds as well as other projects. “An audit adjustment occurred and we are requesting the workings from the past auditors so that we can provide the correct amounts, yet this was not passed on to the council. We have been chasing after the past auditors.

“Hopefully this will be fixed next year”.

Qrendi Mayor David Michael Schembri was also contacted by The Malta Independent, and brought in the Council’s Executive Secretary, Christopher Falzon, to help explain what happened with regards to his council and their accounts in detail.

Mr Falzon told this newsroom that the auditors who were auditing his council, sent by the NAO, had changed a couple of years ago. Between 2010 and 2015 the council conducted an EU funded project that costed around €225,000 excluding VAT. “The previous auditors had made certain audit adjustments which they obviously knew about and as such never commented on the possibility of a discrepancy on the council’s income versus what it actually has. Auditors changed and when they asked us about the situation, we explained that the amount is what came out under the measure regarding EU funds, but when we asked for the workings from the previous auditors, so that today’s auditors can better understand, we never received them. This is a situation we and another council are both having problems with”.

“These new auditors cannot give their opinion on how the local council is doing based on this fact. After last year’s audit, the local council accountant is trying to kind of clean up the account where there are these problems. The truth is that this isn’t really a problem as the project is closed, the funds we needed to take, we took, and we gave the excess funds back. We are hoping that for the 2016 audit this situation will be resolved and would not occur again”.

“The problem does not revolve around misappropriation of funds, or excessive debt or anything like that, but is about an audit adjustment”.

The NAO had also said that the Qrendi local council did not disclose any capital commitments it plans to undertake in the near future in its financial statements. Asked about this, he said: “We could not disclose any such capital commitments as in reality there weren’t any.”

He added that this year a project will be put down in this year’s results, regarding the construction of a civic centre, but this could not be put down as a Capital Commitment for the 2015 audit as everything was still up in the air and the project was on the shelf for 11 years as we were trying to get government funds through the capital projects scheme. Last October, finally, we were told that we would be given the required funds and thus now we know that we will have such a capital commitment.”

This newsroom attempted to contact Vittoriosa Mayor John Boxall, however he was in meetings.

Mosta’s Acting Mayor Ivan Bartolo was also contacted, and said that for a long time, the council did not have a permanent executive secretary and had to share one with another locality.

Turning to the auditor’s report, he said that one of the reasons why the auditors did not express an audit opinion was because the council did not manage to present the financial statements of the North Joint Committee to the Auditors. “As per reply of the Management Letter dated 30th May 2016 ‘Mosta Local Council has made persistent representations calling for the production of such a report within the respective time frame. Back then, the committee was being wound up, and its annual audited report was still not given”.

“Notwithstanding that the council is not happy with the qualification in its audit report, there are no further actions to be taken other those already taken.  In view of this, while the council will continue to exert pressure on the Regional Committee, one should point out that such issue calls for Department for Local Government  intervention, rather than being mentioned in the management letters of affiliated Local Councils, year after year.  It is important to note that the NAO report criticised the fact that these Joint Committee's liquidation process seems to be at a standstill”.

Another point mentioned by the auditors as to why it did not express an audit opinion was that the inventory held by the council is valued at selling price.  “As per reply of the Management Letter dated 30th May 2016 ‘ It is to be noted that the cost (purchase price) of the stock of books and maps is the same as that of our selling price.  This system was adopted by the council to avoid Mosta residents and especially students paying a marked-up price for these items.  It is thus pretty obvious that the selling price is equal to cost price in such a case and thus inventory is valued in line with International Accounting Standards.  Furthermore, it is important to note that the cost of the books/information material in the council's balance sheet was circa €14,000 and thus any difference, if any, is very immaterial,” he said.

Turning to EU Grants and Cultural exchanges, the Acting Mayor said that the Archaeotur projects which the Council was involved in were actively managed by third parties like  Heritage Malta. “The Council’s involvement was only that of receiving the funds from the Paying Agency and processing payments to the suppliers. Any documentation is available at the Council’s Offices.  It’s worth also noting that these projects were audited by a number of auditors, namely Auditors for the Projects themselves, for the Farms and Programmes Division and also EU auditors”.

“In early 2012, the Council have consulted with Planning & Priorities Coordination Division in order to seek clarification as to the exact amounts that are due from the grant and cultural exchange projects.  The difference was written off and duly recognised in the Statement of Comprehensive Income for Y/E 2012.  However it later transpired that the relative authorities subsequently changed these estimates and therefore these discrepancies had to be rectified post audit.  Furthermore with respect to accrued income on EU projects we would like to state that the Council provided the auditors with correspondence, with the relative authorities, showing what was due to the Council at project end. Due to the above reasons, the council is finding itself in a situation each year where an audit opinion is not expressed on these grants”. 

“If each year the auditors will continue to state the opening balances are not correct and do not propose an audit adjustments to adjust these opening balances, it will be useless for the Council to calculate the monthly release in grants to the income statements.  The Council will be discussing the matter as to  whether to go through each grant and calculate the release retrospectively, however as stated above this is a very difficult process and might not be fruitful if all the information is not available since a number of third parties were involved in these projects”.

He said that the Council is striving to improve its financial situation with the limiting resources available.