Eight local councils have failed to submit their audited reports to the National Audit Office by the time its report was finalised, a statement read.

Auditor General Charles Deguara presented to the Speaker of the House of Representatives Anġlu Farrugia, the annual report on the workings of Local Government for the year 2022.

"A total of sixty (60) Local Councils, six (6) Regional Councils and the Local Councils Association submitted their audited accounts to the National Audit Office (NAO) by mid-October 2023, despite that these were expected to be received by end of June 2023. Those pertaining to eight (8) Local Councils, as indicated in this report, were not submitted by the time this report was finalised," the NAO said. In its report, the NAO says that "some of these delays were primarily triggered by the previous year's audit being either concluded very late or not concluded at all. Consequently, this had a ripple effect on the audit for financial year 2022, as the time available for audit fieldwork was not sufficient. In the case of Birgu, Ħamrun, Swieqi and Valletta, the audits of both financial years 2021 and 2022 were still pending by date of publication of this Report. Moreover, in the case of Birgu and Ħamrun, the audit for financial year 2020 was also not yet concluded, with the former having that of 2019 still in progress as well. This situation is deemed unacceptable by this Office since it demonstrates an absence of accountability on the part of the respective Council."

The NAO report noted that, "in the majority of cases, the delays were the result of lack of cooperation by the respective Council with the Local Government Auditor (LGA), leading to poor audit progress being registered, and at times also bringing the audit process practically to a standstill since the related information was not provided to LGA on time. In light of this, Councils must understand that unless the established timelines are adhered to from the start and audit queries are addressed within a reasonable timeframe, due to considerable pressure of work, it will be difficult for LGAs to reschedule the respective audits, thereby resulting in further delays to meet the final deadline for completion of the audit. Such delays not only affect the usefulness of the related information but also the relevance of the entire audit process, as this will not provide any added value. Hence, this Office strongly recommends that urgent action is taken to address this problem since such situation is untenable."

The accompanying statement by the NAO to the report reads that, "also, of significant concern to NAO is the fact that four (4) Local Councils did not even bother to reply to the Management Letter sent to them, which incorporated a number of shortcomings. This is totally unacceptable to this Office."

While NAO acknowledges the overall progress registered when compared to the preceding year, room for improvement still prevails, it said; "hence the Auditor General urges pertinent Councils to intensify efforts on this matter. It is important that the services given to the citizens not only meet the needs of the local community but are also provided in an effective, efficient and equitable manner. In this regard, NAO satisfactorily notes the efforts on the part of the Administration to ensure that, as far as possible, all Councils are provided with the required support to achieve their mission and register progress."

The NAO remarked that some Councils still did not fully commit and collaborate effectively with the Local Government Auditors, hindering the audit process and causing delays in completing the respective audits. Moreover, four (4) compliance reviews conducted by NAO revealed that the main concern was the non-adherence to procurement regulations. 

The NAO said that it firmly believes that there is room for improvement in the Councils' internal controls as recurring deficiencies, such as errors of an accounting nature and inadequate management of fixed assets, have been reported upon year on year, suggesting that corrective action has not been taken to address the root causes. "Another issue commented upon related to the fact that the Councils' allocation was not always utilised efficiently and economically, resulting in either budget overruns or excessive savings of funds."

Other concerns included: a) the audit reports of thirty-six (36) Local Authorities were qualified with an 'Except For' audit opinion, meaning that certain areas could not be audited due to insufficient supporting evidence; and b) five (5) Local Councils had an Emphasis of Matter Paragraph in the auditor's report, highlighting a material uncertainty related to going concern, implying that they might not be able to meet their financial obligations as they fall due, the NAO statement read.

31 local councils ended 2022 financial year in deficit

The report found 31 local councils to have ended the 2022 financial year in deficit.

"In simple terminology, financial management is the ability to prioritise and reconcile unlimited demands and needs with the available revenue streams. This could provide tough challenges, especially in the local scenario, whereby Councils are expected to finance commitments with their limited financial resources, mainly the allocation provided by Central Government. Thus, if both income and expenditure are not adequately managed, this could negatively result in shortage of funds. An increase was registered in the number of localities that incurred a deficit during the year under review (31) when compared to the preceding year (in 2021 there were 11).

"All Local Councils listed in the relevant table, with the exception of two, namely Kalkara and Xgħajra Local Councils, had sufficient reserves to make up for the reported deficit. This Office considers the negative financial situation of the two Councils in question, as unacceptable and for which prompt remedial action is required to improve the respective Councils' accountabtility. It was only one Local Council, namely Fgura Local Council that managed to rectify its position from a deficit in 2021 to a surplus during the year under review."