17 local councils recorded a negative working capital, according to a recent report by the National Audit Office, a decrease in number from 23 since 2015.

The Auditor General had presented the Speaker of the House with the annual report on the workings of local government for 2016, which is based on the audits carried out at Local Councils, the Regional Committees and the Local Councils Association.

A negative working capital is where current liabilities exceed current assets.

According to the report, the Victoria local council had the highest negative working capital of (€722,379), followed by Birkirkara (€557,022) and Zebbug (Malta) (€411,129).

The NAO reports, on the Victoria council, that: “the council’s financial situation continued to deteriorate when compared to the preceding years, with the working capital of 2016 standing at a negative €722,379. This situation was caused by a significant decrease of €253,494 in overall current assets.”

Victoria Mayor Samuel Azzopardi was contacted by this newsroom, and explained that certain figures should not have been included in the working capital workings. He said a mistake was made by the auditor, and then the council had the opportunity to explain themselves to the Department of Local Government. “The NAO did right to highlight it, as that was the figure brought to its attention. What we want to clarify is that it happened due to this accounting exercise.”

He explained that there was €383,116 on a public private partnership project which were classified as current liabilities, but said that in reality an agreement had been reached to settle the balance through annual payments of €44,000, adding that this meant €339,116 should be re-classified as non-current liabilities. In addition he said, €143,943 is deferred income and as such inflates the amount of current liabilities.

This, he explained, means that the negative working capital is actually €239,320. The council, he added, also did not receive €93,286 on the St George Square project, and €38,626 on work on the J.F. Kennedy sqyare. “These funds were included in the accured income for a number of years, however were never sent by MEPA. The result was a reversal of €131,922 less in current assets.”

The NAO also noted that the Victoria council registered a surplus over the preceding Year’s deficit

The NAO, referring in general to the 17 councils with a negative working capital, said that “though still in the negative, a number of councils registered an improvement in their financial situation.”

Attempts were made to contact the Zebbug and Birkirkara councils, but calls were not returned.

On the Birkirkara local council, the NAO report read that the gap between the Council’s current assets and current liabilities widened further during the year under review, resulting in a significant negative working capital balance. “Although current liabilities decreased by €263,417, such movement was not sufficient to offset the even higher decrease of €413,902 in overall current assets which was mainly brought about by downward movements of €186,797, €169,974 and €56,598 in accrued income, cash and cash equivalents, as well as receivables respectively.”

Regarding Zebbug, the NAO said: “Despite the improvement of €140,439 registered over the preceding year, the Council is still in a precarious financial situation, ending the year under review with a negative working capital of €411,129. The improvement was mainly the result of a downward movement of €218,936 in overall current liabilities, which was partly offset by a decrease of €78,497 in total current assets. The negative balance indicates that the Council has accumulated significant amounts of debt during the past years, which will take several years to be repaid, considering that the Council has to meet annual fixed operating costs to maintain a minimum level of service.”

The National Audit Office also noted that due to the various shortcomings encountered, an audit opinion could not be expressed on the financial statements as presented by Birgu and Mosta Local Councils and Northern Regional Committee.

A statement by the NAO, while speaking generally about the whole exercise involving all the councils and committees, read that "from a thorough review of the respective financial statements, as well as the related management letters, it was observed that a number of concerns and weaknesses which had been reported in previous years still prevailed. Particular reference was made to a number of instances where procurement was not carried out in line with pertinent regulations."

The NAO commended the continued efforts on the part of the administration, particularly following the recent restructuring of the Local Government Department, to better support and monitor the performance of all local councils. However, said that more needs to be done to ensure that the shortcomings mentioned in the report are duly addressed.

The full report can be read on the NAO website.