The National Audit Office carried out Financial and Compliance audits concerning matters relating to financial year ending 31 December 2001. The Auditor General submitted his annual report to the Speaker on 27 December 2002 who in turn laid it on the Table of the House of Representatives on the 13 January 2003.

The audit opinion, findings and audit concerns are included in this report. Under the ministerial and departmental sections an improved reporting structure has been adopted in an attempt to make this report more user friendly. Each section now includes a background giving a brief description of the area under review followed by a classification of issues under key, control and compliance.

Recommendations made to the respective entity with a view of improving the internal control systems and the comments by management as to what action they plan to take are also included.

The Financial Report Section reports on the Consolidated Fund Statement, Loans, Investments, Public Debt, Advances and Letters of Comfort and Bank Guarantees. The Public Account held at the Central Bank of Malta has not been reconciled since June 1992. The Bank Reconciliation system went live on the 14 October 2002 taking the opening balance of the Public Account as shown by the Central Bank of Malta.

Arrears of Revenue, ,approximately amounting to Lm404 million as at 31 December 2001, is still an area where significant improvement could be achieved in view of the inefficient procedures for the collection of debt and weak enforcement procedures. A number of departments did not submit their return, whilst data submitted by the Social Security Department was found to be unreliable.

The NAO is also concerned that there is still widespread non-compliance with the Financial Rules and Regulations. The following were the main areas of concern:

Expenditure

• Payment Vouchers not covered by VAT fiscal receipts

• Expenses not charged to their respective account

•  Purchase Orders not issued prior to purchases

• Infringements of the DASmulti-payments system in the Departmental Accounting System (DAS) that may have resulted in the evasion of tax and possibly VAT, whereby payments avoid tax and possibly VAT.

• Payments effected upon invoices not specifically addressed to the respective ministry or department

• Double payments effected as a result of weak internal controls.

• Completeness of records could not be determined due to lack of audit trail

• Revenues not receipted and and funds not deposited, as well as and delays in remitting funds to the Public Account.

Non compliance with standing regulations, particularly inadequate record keeping of log books of general use vehicles.

General non compliance with the provisions of inventory regulations, usually including the absence of up-to-date inventory records.

Notwithstanding the investment made out of Public Funds in the installation of computerised systems, there were instances where such systems were underutilised. This led ‘inter alia’leads to aone situation where revenue collection wasis not not effective.

In terms of the Local Councils Act 1993, the audit of Local Councils was carried out on behalf of the Auditor General by private audit firms. Nine Local Councils ended with a negative working capital as at 31 March 2002, while audit reports of fifty-four Local Councils were qualified. The most widespread shortcomings reported during the year under review were already highlighted in the previous financial year.

Audit Opinion - The Audit Report was issued with an overall positive audit opinion of the Malta Government Financial Statements for the year ending 31 December 2001, while taking into account the above concerns that need to be addressed.