Malta Enterprise would have had to “close both eyes and stretch its imagination” to approve full funding to Progress Press, according to an internal report quoted in court on Wednesday.

The former head of relationship unit and the Chief Officer Finance of Malta Enterprise have told a magistrate that Malta Enterprise had not been defrauded of any money by Progress Press, even though the business proposal submitted by the company included “unquantified consumables” which should have been excluded from the proposal.

The compilation of evidence against Keith Schembri and his co-defendants continued on Wednesday in Schembri’s absence after Court had been told yesterday that Schembri had been taken to hospital for treatment of a serious medical condition.

Schembri's father Alfio was also excused by the magistrate to be near his son.

George Francalanza who in 2013 was heading the relationship unit was the first person to take the stand on Wednesday.

The witness had received the proposal from Progress Press and eventually prepared a report which was presented to the board.

The witness told the court that it was only now, after the extensive media coverage of the case, that he and others at Malta Enterprise found out that consumables were in the original business proposal, which he had recommended.

Francalanza was the officer who had recommended approving the Progress Press funding application.

The court heard how, writing in an internal Malta Enterprise report, Francalanza had said that if the agency were to “close both eyes and stretch its imagination” then full funding should be applied.

Going through the application by Progress Press, Francalanza said the first investment was for a digital press, which included 1 million “clicks per year”. Francalanza also told the court that he did not know what the ‘clicks’ referred to in the proposal meant. The term relates to the amount of paper being used by the printing machine.

The witness explained that when large grants involved established companies, it was not expected that consumables would make up such a big proportion of the funds requested. Francalanza said for the company to receive its funds from Malta Enterprise it had to present invoices and proof of payment, which served as another check.

But the Court remarked that had Malta Enterprise looked into the matter, it would have discovered that 50% of the amount were, in fact, consumables. The grants by Malta Enterprise were only reserved for tangible assets.

During the cross-examination of the witness, the defence pointed out that it was “not possible for one to be defrauded if the person defrauding him had made his intentions known.”

Asked again why the issue was not flagged at the proposal stage, the witness insisted this would have been flagged at payment stage and remarked that “as far as I am concerned there was no fraud.”

Francalanza said Progress Press ended up receiving slightly less than that €1.6 million amount listed in the letter of intent, as the company informed Malta Enterprise that they spent less than originally planned, and their funding was reduced accordingly.

Cross-examined by defence lawyers Edward Gatt and Mark Vassallo, Francalanza said that he had never checked paperwork related to the deal, even after the matter was mentioned in the news.

Consumables had not been quantified, he said, acknowledging that he had not asked about them before making his recommendation to approve the funding application.

At this point, Magistrate Frendo Dimech interjected, asking whether it was Malta Enterprise’s responsibility to check what they are giving out money for.  

“Yes, but we have the safety net of the payment stage only coming against invoices and proof of payment,” Francalanza said.

As the sitting concluded, Gatt asked, “so in your view who defrauded who and by how much?”

“I see no fraud,” Francalanza replied.

“Some people spent a fortnight in prison and some people are in the [health] state they are in because of this!”  exclaimed the defence lawyers.

Also testifying today was Chief Officer Finance, Joseph Zammit, who told the court that at the time he was a manager within the finance department at Malta Enterprise. He explained that his role was to process payments once these are approved by the incentives unit.

Progress Press’ cash grant was based on a €5.5 million investment, he said. According to the guidelines, this could only be used to purchase tangible assets. The letter of intent was based on the implementation of the plan presented by Progress Press which envisaged an investment of €5.5 million, he insisted.

Two invoices were submitted by Progress Press, and the related proof of payment - copies of bank statements with references to cheques and so on - would be verified in order to ensure that they related to the two invoices submitted.

Asked about consumables, Zammit said that he had only realised they were in the business proposal when the information was requested in connection to the case.

During his cross examination, Zammit was asked whether Malta Enterprise had carried out a verification exercise to see if any of its grants had been issued on consumables. Zammit replied that if the amount listed in the invoices was correct, then there was no fraud.

The third investment undertaken by Progress Press was of €2.5 million and covered other equipment related to this new digital short-run printing plan. However, this did not include consumables.

He said Progress Press’ original letter of intent was withdrawn and superseded by another, after the company changed their minds about applying for a bank loan and had decided to fund the investment themselves.

The case will continue on May 17 at 1pm.