The “competent authorities” should launch further investigations into any possible financial mismanagement and misuse of public funds in connection with the deal which saw government award three public hospitals to Vitals Global Healthcare, the National Audit Office has said.
In its second scathing report into the deal, the NAO quoted a senior Health Ministry official who raised the suspicion that public funds, which were paid to Vitals (VGH), had been channelled elsewhere.
“Serious concerns regarding the regularity of use of funds provided by government were highlighted by the Ministry of Health, who alleged that funds provided by government to the VGH were being channelled outside of the company,” the NAO wrote in its 467-page report into the contractual framework of the deal.
“This understanding was based on the premise that despite the concession fee paid by government being sufficient to cover existing operations, the VGH had accumulated significant creditors,” the auditor continued.
He noted that the observations from the official – who was not named – drew the “gravest concerns” from the auditor, but that the Office did not have the mandate to delve further into the matter.
“Should that alleged by the MFH, lent credence by the dire situation depicted in the VGH’s financial statements and the failure to effect the required capital investment, be proven, this may lead to the conclusion that there was the misuse of public funds,” the auditor wrote.
“This prompts the NAO to recommend further investigation by the competent authorities in terms of any possible financial mismanagement and misuse of public funds in connection with this concession awarded by government.”
Vitals Global Healthcare won a concession for the operation of three of Malta’s state hospitals – St Luke’s, Karin Grech and Gozo General Hospital – in 2015. The deal has however always been shrouded in a certain level of suspicion, especially after VGH flunked financially little over two years later.
The concession has since passed on to Steward Healthcare and it remains a source of controversy even as court proceedings are underway, led by former PN leader Adrian Delia, to get the deal rescinded.
The NAO on Tuesday published the second part of an audit into the concession, with the first part having been published in July 2020, finding that VGH should have been excluded from the selection process for the concession to the “collusive behaviour” and that the deal was pre-determined for VGH to win.
VGH Finances: Government were granting ‘waiver after waiver’ to VGH without Cabinet approval
The NAO expressed its utmost concern that VGH had failed to submit any of its companies audited financial statements, noting that the 2015, 2016 and 2017 statements of its companies were only submitted in the first quarter of last year, after the change in ownership of the companies.
That failure meant that government could not verify the sustainability of the operation that VGH was financially able to honour its obligations and that public funds were being put to good use, rather than risking fraud and misappropriation.
A health ministry official told the NAO that it was evident that VGH was facing financial difficulties and that “the Concessionaire was insolvent with several garnishee orders issued against it, an accumulation of €12,000,000 in operating losses and €32,000,000 due to creditors”.
VGH’s inability to secure financing was the “pivotal shortcoming” on which rested all other subsequent failures in the concession, the NAO said.
“The failure of the VGH to deliver on its commitments was mirrored by government’s lack of necessary action in attending to the evident inadequacies of the Concessionaire. Instead, government’s representatives allowed for waiver after waiver of the requirement to secure financing, thereby perpetuating the failure that this concession came to represent,” the NAO added.
The origin of this, the auditor said, can be traced to the “grossly erroneous” selection of VGH as the concessionaire in the first place.
Graver still was that government’s representatives were systematically granting waivers to the VGH of the requirement to secure financing without prior referral to Cabinet for authorisation, the NAO said.
“In a consistent manner, Konrad Mizzi, in his various capacities as a Minister of Government, first entered into agreements or commitments with the VGH to extend financial close, then sought Cabinet’s approval,” the NAO stated.
Mizzi was the minister responsible for this deal, as he was Minister for Energy and Health at the time – and he remained responsible for dealing with VGH even after he was moved off from that portfolio.
There was, it appears, confusion within government as to who should be negotiating what with VGH.
The NAO quotes Health Minister Chris Fearne himself saying that the Office of the Prime Minister had a “covert role” in negotiations and that Mizzi and the then OPM chief of staff Keith Schembri held parallel negotiations with VGH while he had his own negotiations with the company ongoing.
The contract: Health Ministry reported around 60 breaches to quality assurance board in 2017
Mizzi was ultimately the person responsible for multiple changes to the contract between VGH and government – changes which the NAO said consistently favoured VGH’s interests, rather than the country’s.
Many of these changes were a departure from the stipulations specified in the Request for Proposals (RfP), the NAO said.
One such departure was a reduction in services provided by VGH with no adjoining reduction in financial compensation from government and a supposed increase in beds provided by VGH with an adjoining increase in financial compensation in one addendum signed a mere week after the agreement on the concession was signed.
“The net effect of these revisions solely served the interests of the VGH, with the Concessionaire securing more guaranteed revenue,” the NAO said.
By November 2017, a Quality and Assurance Board meeting had been told by the Health Ministry that there were around 60 breaches in the concession agreement.
The NAO said that what was recorded in the minutes of this meeting was disputed by the Health Ministry in a meeting that the auditor had with it, but also said that it was not convinced and that it “fails to understand” why the provisions of the agreement regulating the notification of perceived breaches with the Board was not adhered to.
All in all, the NAO found that the strained relationship between government and VGH could be attributed to a number of factors, such as the poor design of the RfP and the contract itself and the structural weaknesses at Mizzi’s ministry, which gave grounds for VGH to exploit.
On VGH’s part, failure to implement meaningful progress in relation to this concession was traced to two fundamental weaknesses.
“First, that the VGH had no relevant expertise in healthcare provision, and second, that the VGH did not have the required resources to undertake a project of such magnitude,” the NAO said.
“Although these two factors are intrinsic to the VGH, in this Office’s opinion, this does not detract from government’s ultimate responsibility, particularly in terms of its selection of the VGH, a reflection of its grave ineptitude in governance, for the Concessionaire was immediately and evidently not fit for purpose,” the NAO said, in more scathing criticism of the government.
‘Multiple failures in good governance, accountability and transparency’
The NAO concluded that the several failures which were traced to the implementation of the concession can be traced to the selection of VGH as the concessionaire in the first place, which was a “poor choice which set the stage for what was to come”.
“The negotiations that quickly followed selection were similarly flawed, conditioned to an extent by the structural anomalies and organisation of the Ministry for Energy and Health and the general ill-preparedness in terms of what was sought by government through this concession,” the NAO said.
“None of the milestones set were achieved by the VGH. Although responsibility for this failure rests primarily with the VGH, the situation of default was allowed to persist and enabled by government representatives’ successive waivers through which the Concessionaire’s inability to secure financing was condoned,” it continued.
The NAO also noted that aside from failing to deliver an improved health infrastructure, this concession fell short of achieving another critical objective set by government, that is, the shifting of project expenses off government’s balance sheet.
“The NAO’s concern regarding these key shortcomings is heightened when seen within the context of the multiple failures in good governance, accountability and transparency that characterise this flawed concession,” it concluded.
A third part of the audit, which is yet to be published, will address the transfer of the concession to Steward Health Care.