In terms of Section 108 (5) of the Constitution of Malta and the First Schedule of the Auditor General and National Audit Office Act, the Public Accounts of the Government of Malta are to be audited and reported upon annually by the Auditor General to the House of Representatives.

This report summarises the findings of the financial and compliance audits on Malta Government, and a number of non central government organisations, which have been concluded up to June 2005 in respect of the financial year ending 31 December 2004. The report is intended to compliment the Annual Audit Report which will be published towards the end of the year.

This is the first time that a mid-year Audit Report is being issued by this Office.  The motivation behind this publication is to bring to the fore issues of current interest which have been subjected to NAO’s review.  It should help in reducing the time gap between the completion of audits carried out during the first half of the year and the reporting time thereof to the Parliament.

The following were the main issues identified: 

• Agreements by the Office of the Prime Minister and third parties, mainly service providers, are being entered into after commencement of work or towards the end of the project.  Both parties are not always abiding by all provisions of the contract.  Moreover, invoices are being certified correct for payment without adequate details substantiating the amounts paid.  
   

• An audit on the internal controls of a capital project carried out at the Department of Housing, Construction & Maintenance revealed that: 
   

• Estimates on bills of quantities prepared by the Department, prior to the tendering process varied considerably from actual figures.  Comparison of the contracted rates against those originally estimated by the Department also revealed substantial fluctuations. 

• No tests were carried out regarding conformity with applicable standards of main items used in the construction process.

• No formal authority was requested by the contractor before performing additional works or any variations from original bills of quantities.
    

• The Ministry for Gozo did not translate the contents of MF Circular 5/2002 – relating to the submission of Fiscal Receipts - into formal policies and procedures to be adopted by all three (3) Departments forming part of the Ministry. Departments and Cost/Responsibility Centres within the Customer Services Department adopted their own procedures thus hindering effective control by the Ministry. Various Cost/Responsibility Centres within the Customer Services Department failed to submit any Returns to the VAT Department. Lack of adequate communication and co-ordination with the VAT Department were noted.  
   

• Upon the introduction of the Eco-Contribution Act No. XII of 2004 (Cap. 473), which came into force on 1 September 2004, the VAT Department lacked the system structures and controls to ensure that systems were functioning efficiently and effectively. Controls were missing over inspections, procedures, registrations and stock declarations. Proper guidance to the public on unclear issues of the Act was lacking. The Department did not plan to use information already available on the VAT Database.  
   

• The Social Security Department was not sufficiently prepared for EU accession as adequate upgrading of the infrastructure and training at the Department did not take place prior to accession. Communication problems exist between Institutions within the EU. There is a lack of audit trail as regards the computations of pensions and Old Age Pensions’ applications raised locally for individuals with no completed periods of insurance in Malta. A bilateral agreement with a Member State was erroneously considered following membership, while the Department failed to consider overlapping periods of insurance.  
   

• A follow-up audit at the ITS on the findings and recommendations featuring in the Audit Report for financial year 2002 revealed that certain issues previously raised by the NAO, remained unaddressed by the Institute.  
   

• Inadequate stock records of livestock items withdrawn from stores at the Government Experimental Farm were being maintained while donations given as well as those received were not supported by official documents signed by both parties. 
   

• During a follow up audit of the Fuel Pump Station at the Police Department various discrepancies were noted, in particular when physically checking actual quantities in the tank with the respective records shown on the ledger.  Other matters were also highlighted that showed a lack of enforcement of procedures in the control and recording of fuel.  
   

• Control over the administration of the Agriculture Support Scheme needs to be upgraded.  It resulted that payments were effected to beneficiaries with details differing from that of the application.  The Ministry was not in possession of a valid bank guarantee relating to advance payments for financial aid.  
   

• A number of audits carried out on selected Non Central Government Organisations (NGOs) and other Government authorities revealed a number of weaknesses: 
   

• The financial statements of a number of NGOs were not prepared in accordance with International Financial Reporting Standards (IFRSs).  The accounts of these entities are still being prepared on the cash based accounting system. 

• Property belonging to the Gollcher Foundation was neither valued nor recorded in the financial statements.

• The Malta Resources Authority lacks the adequate software to administer income from licence fees and is not in a position to determine the exact amounts outstanding.

• Lack of controls over the safeguarding of fixed assets was noted in some entities since a Fixed Assets Register was not being kept or updated.

• The provisions of the Public Service Management Code with respect to travel overseas were not always adhered to.

• A sample of invoices subjected to our review revealed weaknesses in the billing and credit notes systems and in the sales ledger control resulting in an incomplete audit trail of invoices and a general lack of controls.