‘Extravagance’ in the use of public funds by the Malta Film Commission (MFC), coupled with poor budgetary controls led to a negative working capital of over €1 million in 2020, the National Audit Office has said.

This emerged in the Audit Report on the Public Accounts for 2020, which was presented by Auditor General Charles Deguara to Speaker of the House of Representatives Anglu Farrugia on Monday.

The Auditor General said that the principal activity of the Malta Film Commission (MFC) is to market the island in the international industry as a film location and to facilitate the work of productions’ shooting in Malta.  “The main scope of the audit was to evaluate the adequacy and effectiveness of internal controls, specifically on travel and to verify whether standing regulations were followed.

The report highlighted a number of points with regard to the MFC.

In the section dealing with the MFC, under the subhead: ‘Extravagant Expenditure on Travel’, the report read that one of the conditions cited in the Code of Ethics, guiding the personal and professional behaviour of public employees, is that public officers should strive to obtain value for public money well spent, and avoid waste and extravagance in the use of public resources.

“However, from the documentation reviewed and the amounts paid, it could not be concluded that public resources were being used in an economical manner.”

The report read that all accommodation was at superior locations, at times in five-star hotels.

It also said that significant amounts were spent on meals, including three instances where the cost of such meals exceeded €1,000. “No documentation was presented indicating details with respect to restaurant receipts, such as who was present for the respective meals. This made it impossible to distinguish between hospitality offered to third parties or meals availed of by the travelling officers.”

It also read that the amounts totalling €24,568 were paid to a particular global chauffeur service company between 2018 and 2020 with respect to business class transport service, “which was the most common mode of transportation for the travelling officers in question. The highest amount paid for a single trip from the entity’s credit card was equivalent to over €500.”

In terms of recommendations, the NAO said that while acknowledging that image plays a big part in the film industry, expenditure from public funds should still be carried out judiciously, according to the resources available and in line with prior approvals as per standing provisions. Hence, MFC’s management is to be guided by the principles of the Code of Ethics and ensure that resources are used in an efficient and economical manner.”

MFC’s management commented that the meals referred to were all carried out for business purposes. “In relation to the cost, one should note and understand that in the film industry, it is crucial that MFC keeps up appearances. MFC cannot possibly decide to be economical and take a prominent film director to the cheapest restaurant option available, when at the same time trying to attract the director to film a movie on the Maltese shores. The film industry does not work that way and Government manuals and policies cannot be implemented carte blanche across the board without also taking into consideration the particular exigencies of the industry in which one operates.”

The MFC said that in this case, “one should not take the costs of travelling and meals in isolation and simply state that expenditure was extravagant, without also acknowledging the substantial increase in revenue that MFC attracted following these visits. For the years 2018-2020 alone, MFC managed to attract a total of €82 million in the local economy. Nonetheless, it is also being acknowledged and agreed that relevant documentation on the meals in question, including who attended the meals and purpose of the meals, are to be prepared, so as to increase transparency and eliminate any misconceptions about the use of such funds. In relation to accommodation, the market dictates the hotels and the audiences dictate the locations. It is crucial that MFC stays at an accommodation where all the action is happening. In many instances, it is also the host who dictates accommodation to be used rather than this being a choice of MFC. In such instances, MFC still tries to be economical whenever possible, as often one hotel room is shared by two or three different people.”

Per diem allowance not given in line with standing regulations

Another issue highlighted by the NAO dealt with per diem allowances. With respect to at least 15 of the 16 sampled visits, NAO computations revealed that the benefits availed of by the travelling officers, comprising accommodation, meals, transport and other sundry expenses, exceeded the total per diem entitlement by more than €60,000 in aggregate.

It noted that actual accommodation costs were “significantly higher than the portion allowed by the subsistence allowance, which difference was defrayed from public funds. No specific justifications for such selection were given.” It said that expenditure relating to transport in the country visited, as well as sundry expenses over and above the allowed subsistence, “were also paid from the credit card of MFC and not refunded.”

“Meals paid through the credit card were not deducted from the subsistence allowance,” the NAO noted. “No reconciliations were carried out upon return, in order to reimburse the extra amounts granted as subsistence allowance.”

The NAO recommended that a comprehensive exercise be carried out by MFC, covering all travel undertaken between 2018 and 2021, in order to identify subsistence allowance overpaid and recoup those amounts from the respective officers.

The MFC however, did not agree “with many of the assertions outlined above.”

“The meals paid by MFC are linked to entertainment and hosting of foreign filmmakers and industry stakeholders (hospitality). Therefore, meals paid through the credit card were not deducted from the subsistence allowance as they cannot be considered when calculating the total per diem dispersed by MFC, since such costs are not related to per diem.”

When MFC officers were off duty and sat for personal meals, such were always paid for by the entitled per diem provided, the MFC said. “This indicates that for the indicated trips, total per diem entitlement was not exceeded by €60,000 as is being claimed.”

“In relation to accommodation, one must bear in mind that in such an industry, decision makers always populate the main areas in markets and festivals. Therefore, it makes no sense for accommodation to be booked in other areas where activity is minimal. Prior to booking accommodation at high profile festivals or markets, justifications were provided and approvals were also sought where per diem was to be exceeded. In terms of transportation and sundry expenses, MFC always aims to maximise the number of business meetings abroad. When operating with such a mindset, one cannot always assume that per diem amount related to transportation would be sufficient.”

“Naturally, adequate transportation is required when attending high-profile meetings and visits. Bearing in mind the travelling required to attend business meetings when on duty, such transportation costs were paid through MFC and thus the 20% per diem entitlement for transport and sundry expenses was rarely provided to MFC officials. This means that in instances when MFC officials were off duty, transportation used for travelling was paid personally, as no per diem was entitled in this regard.”

The NAO highlighted a number of other issues. One such issue dealt with the MFC’s recording of transactions. The MFC accepted the recommendation of the Auditor General, that transactions are to be recorded according to the nature of expense, supported by documentation.