11 local councils did not submit their audited financial statements by the deadline, the National Audit Office (NAO) said.

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 2023.

57 local councils, six regional councils and the Local Councils Association submitted their audited accounts to the National Audit Office (NAO).

"Despite that these were expected to be received by end of June 2024, 11 Local Councils did not submit the audited financial statements to this Office by the ultimate deadline of mid-October 2024. To this effect, the Auditor General stresses the immediate need for the Councils to submit their audited accounts, as required by law, in a timely manner. Non-submission cannot be tolerated any further," it said.

The 11 councils which did not submit accounts before the necessary deadline were Birgu, Fgura, Floriana, Ghasri, Hamrun, St Julian’s, San Gwann, Ta’ Xbiex, Valletta, Xaghra, and Xewkija.

Some of these delays were primarily triggered by the previous year’s audit being either concluded very late or not concluded at all. This had a ripple effect on the audit for financial year 2023, as the time available for audit fieldwork was not sufficient, the NAO said.

In the case of Birgu, Ħamrun and San Ġiljan, the audits of both financial years 2022 and 2023 were still pending by mid-October 2024. Moreover, in the case of Birgu and Ħamrun, the audit for financial year 2021 was also not yet concluded, with the former also having those of 2019 and 2020 still in progress.

“This Office considers the situation unacceptable, as it demonstrates lack of accountability by the respective Council,” the NAO said.

It noted that, in the majority of cases, delays were caused by the respective Council’s lack of cooperation with the auditor which hindered the progress and in some cases made it grind to a halt.

The report notes that 16 local councils, as against eight in 2022, registered a negative liquidity position at year-end 2023. It also said that 41 local and regional councils ended the financial year with a deficit, three of which even registering negative reserves.

There were three councils which ended 2023 with negative reserves – Kalkara, Xghajra, and the Eastern Region – which means that they do not have the necessary reserves to make up for the deficit they have reported.

The NAO said that to engage with the councils considered as “financially vulnerable” a total of 20 meetings were scheduled between July and October 2024 during which the respective Councils presented the main causes attributing to their current negative financial situation.

“The key factors identified during these meetings included notable increases in expenditure mainly due to inflation, significant deferred income in relation to ongoing projects not completed by year-end, and pending payments to suppliers for capital projects undertaken in preceding years,” the NAO said.

"The NAO once again emphasizes the importance of collective cooperation, which not only strengthens the local communities but also fosters good governance. It was observed that not all Councils demonstrated full commitment and collaborated effectively with the Local Government Auditors during the audit process, causing delays in completing the respective audits. Furthermore, a compliance audit exercise conducted by this Office at Qala Local Council highlighted concerns relating to non-compliance with procurement regulations."

The NAO acknowledged that, with the exception of one, all Councils managed to submit a reply to the Management Letter. "However, the continued presence of significant shortcomings in these Management Letters is unacceptable. Indeed, NAO strongly believes there is ample room for improvement in the Councils' internal controls. The recurrence of certain issues, such as accounting errors and weaknesses in fixed asset management, reported consistently year after year, demonstrates lack of effective action to address their underlying 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, in certain cases, excessive savings of funds."

Other concerns included: the qualification with an 'Except For' audit opinion of 31 Councils; meaning that certain areas could not be audited due to insufficient supporting evidence; and four local councils had an Emphasis of Matter paragraph in the auditor's report, highlighting a material uncertainty related to the going concern, implying that they might not be able to meet their financial obligations as they fall due.

The full Report can be accessed through NAO website www.nao.gov.mt as well as on NAO Facebook page www.facebook.com/NAOMalta.