ANNUAL AUDIT REPORT ON THE PUBLIC ACCOUNTS 2002; AND REPORT ON THE WORK AND ACTIVITIES OF THE NATIONAL AUDIT OFFICE 2003

Annual Audit Report on the Public Accounts 2002

The report identifies several areas of concern relating to audits carried out in respect of the financial year ending 31 December 2002.   

The analysis of the Financial Report 2002, covering the Consolidated Fund and the Statement of Assets and Liabilities, highlights issues regarding variances in ordinary revenue and expenditure, outstanding advances, loan repayments, investments and public debt. The following were the main issues: 

·       An amount of Lm4.6 million in respect of 2002 was actually received in 2003 and credited to revenue in the year under review;  

·       Although the Public Account held at the Central Bank of Malta has not been reconciled since June 1992, considerable progress has been made.  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.  The Central Bank of Malta statement of the Public Account as at 31 December 2002 ended with a closing balance of Lm15,824,194 as against a balance of Lm14,158,033 reported in the Financial Report 2002.   

The issue of outstanding Arrears of Revenue, amounting to over Lm363 million, still requires significant improvement, considering the inefficient procedures for the collection of debt, weak enforcement procedures for the settlement of fines and lack of correct documentation for the settlement thereof.  

The Malta Development Corporation’s ability to collect arrears due from factory rents and the monitoring function over companies in receipt of various aids need to be strengthened.  Companies included in NAO sample failed to honour their contractual commitments.    

The commercial bank account held in the name of the Director of Agriculture for the administration of funds of the Pitkali Market Scheme is not being charged with stale cheques.  Furthermore, the related funds are being retained by the bank against standing Financial Regulations.  

 The custodianship of money on behalf of third parties at the Law Courts amounted to over Lm7 million at the end of financial year 2002.  Records identifying the owners of the monies held in various below-the-line accounts were not readily available.  

Six Local Councils recorded a negative working capital whilst three had an excess expenditure over income as at 31 March 2003.  Audit reports of fifty-two local councils were qualified.  The most widespread shortcomings reported during the year under review were highlighted in previous financial years.   

Eighty-seven per cent of payors of withholding tax are not complying with the requirements of Legal Notice 51/2002 and Act II of 2002, resulting in late remittances to the Inland Revenue amongst other shortcomings.  

Although the Social Security Department has a system where one assessor determines the amount of benefits to be given and another verifies its correctness, over - and under - payments in the distribution of benefits were still encountered.  These errors are evidence that the verification process is not being carried out effectively.  

All property transferred from the Church to the State had to be validated and registered by the Joint Office by the end of the year 2003. This exercise has been completed only in 5 ecclesiastical entities out of more than 100.   

Recommendations made in June 2000 by a Board of Enquiry, set up to investigate gross irregularities detected at the Cash Office of the Law Courts, have not been fully addressed.   The recommendations included investigations by the Police, reconstruction of cash books and reactivation of cancelled fines.  

There is still widespread non-compliance with the requirements of the Government Financial Rules and Regulations.  Most of the weaknesses have featured in the past Annual Audit Reports.  The most common areas of concern are:

Expenditure

§        Lack of segregation of duties in the procurement process up to the receipt and certification of goods;
§        Non-adherence to Procurement regulations and controls over purchases;
§        Payment vouchers not covered by VAT fiscal receipts;
§        Expenses not charged to their respective account or sub-item number hindering an effective comparison of actual expenditure against budgeted. 

Revenue

§        Mandatory books of accounts and records not maintained or not presented for audit;
§        The completeness of records could not be ascertained in various revenue generating departments due to inadequate audit trail;
§        Lack of segregation of duties in the revenue collecting cycle and delay in remitting receipts.

 Transport

§        Non-compliance with standing regulations, particularly inadequate record-keeping and monthly certification of general use cars’ log-books resulting in lack of proper controls over the issue of fuel and use of government owned vehicles.

 Inventory

§        General non-compliance to the provisions of inventory regulations as laid down in MF Circular 14/99 and the Ministry of Finance’s letter dated 17 July 2000 adversely affecting asset valuation under the accrual-based accounting system. 

Stores
 

§        Mandatory annual physical stocktaking not performed or reports not made available by various stores creating difficulty in identifying slow moving, deteriorating or obsolete items as well as discrepancies occurring during the year;
§        Insufficient audit trail of store issues, variances between physical as against recorded balances and store items not properly coded.

 Cash and Bank

§        Although lack of control over cash and bank balances resulting from missing receipt books and unauthorized cancellation of receipts was not consistently encountered, their nature and effect warrant mention. The reconciliation of bank account balances was also ignored in a number of instances.

Report on the Work and Activities of the National Audit Office 2003

 As from this year the Auditor General has decided to start issuing a separate report on the work and activities of the National Audit Office.  This report explains the role of the NAO and the extent of audit work carried out.  It provides an overview of Financial and Compliance audits of Public Accounts, Performance audits, audits of Non-Central Government Organisations, audits of Local Government and other Special Audits and Investigations carried out in terms of state audit legislation.

It explains the relationship with Parliament, namely the Public Accounts Committee and the NAO Accounts Committee. 

Another part of the report relates to NAO’s International Relations with the European Court of Auditors and with other Supreme Audit Institutions, in particular those of the EU Member States and Acceding Countries. 

The report also provides an overview of developments relating to the recruitment of qualified staff, local and overseas training activities, and the use of consultants to assist in audit and legal issues. 

Progress and strategy relating to the Information and Communication Technology at the Office is then delved into, namely the enhancement of the NAO Website, Intranet and the introduction of a new data security policy. 

The NAO will continue upgrading its work over the coming year through the further enhancement of its human resources, audit and IT strategies.