An audit of Malta's public service has uncovered a litany of administrative shortcomings and flagged arrears of €5.1 billion.  

Published on Wednesday, the report by auditor-general Charles Deguara details shortcomings in more than a dozen entities, from the financial regulator to the police, state hospitals, and even overseas embassies.  

The 300-page report is based on an in-depth analysis of a 2019 financial report submitted to parliament by the accountant general last year. 

The findings come from 38 reports on the operations of several government departments and entities that form part of the Auditor General’s annual audit report.

The report contains more than 300 recommendations to address the shortcomings.

Government arrears up 22% in one year

An analysis of Malta’s public arrears for 2019 reveals a gross arrears balance of €5.1 billion, an increase of €906 million, or 22 per cent, over the previous year’s figure. 

The report says that €4.3 billion of this is believed to be “uncollectable”, meaning the government does not expect to be able to recoup the money it is owed. That leaves a net ‘recoverable’ balance of approximately €819 million. 

Money owed to the government increased by €385 million in the five years between 2015 and 2019, with the highest increase, €162 million, reported at the close of last year. 

The state's recoverable debt amounts to 6.1% of the country’s gross domestic product, a notable increase over both 2018 and 2017. 

Where are the arrears coming from?

A deeper analysis of the 2019 figures reveals that this increase in debt owed to the government resulted from a substantial growth in gross arrears that year, which totalled €906 million. 

The report says that this was partly set-off by increased amounts estimated as “not collectable” of €744 million. 

The Commissioner for Revenue contributed to the bulk of this amount, with an increase in its net collectable arrears of €154 million, followed by the Lands Authority at €7 million and the Health Ministry at €5 million. 

On the other hand, some departments actually reported a decrease in their net collectable arrears, most notably the Judicial Department and the Malta Gaming Authority, which both reported decreases of about €3 million, the NAO said. 

The auditor found that letters of comfort and bank guarantees, considered as contingent government liabilities, reached almost €1.1 billion.

Furthermore, advances totalled €12.5 million. 

A nationwide audit and the shortcomings found 

An audit at the Malta Financial Services Authority revealed a number of procurement issues.

These included resorting to direct orders without the necessary approvals and services not supported by proper agreements. 

Weak internal controls in various areas were noted at Mount Carmel Hospital, leading to non-compliance with standing laws and regulations. 

The hospital has been operating continuously with a running deficit, leading to an adverse working capital of €11,824,230 registered at the beginning of 2019.

This situation led to the continuous deferment of payments.  

A contract entered into by Malta Industrial Parks Ltd for the lease of a factory, was not in line with the approval given by the allocations and compliance committee.

The NAO was also not able to confirm whether the company performed any monitoring on a particular project which was to be undertaken by a tenant in line with the contract signed.

This was uncovered during an audit on revenue from leases, ground rent and encroachment fees generated. 

Public procurement regulations were not always followed by the Foundation for Tomorrow’s Schools when designing and building a new primary school in Marsascala. 

Furthermore, by end of September 2020, the school had not yet been officially transferred to the Education Ministry, despite an inauguration held the previous February.

As a result, several shortcomings were noted, mostly in asset control procedures. 

An audit of personal emoluments at the Malta College of Arts, Science and Technology (MCAST) identified various shortcomings, including lack of internal controls on the number of hours worked by lecturing staff and inaccurate payments. 

Moreover, a number of other payments could not be validated since no applicable policy or addendum was in place.

The NAO found a lack of official ownership of the Malta National Shooting Range project. 

According to state agency SportMalta, this was due to a “lack of administrative capacity”. 

Weak internal controls and other procurement issues, such as works of substantial value acquired following a call for quotations, were also noted.  

The NAO found that enforcement action by the Capital Transfer Duty Department was costing the government around €27million.

The audit points to the duty on documents which was not being adequately chased up.

No enforcement was carried out in the last three years in respect of unpaid Class Two Social Security Contributions. 

The NAO said that by March 2020, the Malta Tourism Authority’s licence management system, which was meant to be in place by the first quarter of 2018, had not yet been implemented. 

Various concerns relating to the management of debtors, arising from Licences to Hotels and Catering Establishments, were also flagged.

Weak internal controls within the Police Department were noted in all the three phases related to procurement, namely the definition of needs, the award of contract and its monitoring.

The extension to the contracts for security services at the Agency for the Welfare of Asylum Seekers was not in line with procurement regulations. 

And, the procurement of medical services was not supported by the necessary documentation. The audit also exposed instances where procurement regulations were bypassed due to claimed “urgency”.

The Local Enforcement System Agency, which handles fines issued by local wardens, experienced difficulties in the collection of pending citations and had €9 million pending last year.

Internal control weaknesses were also noted.

Claims for reimbursement by Local Councils settled from the allocation for Waste Separation of organic bags were not made on a regular basis, while substantial reimbursements to Local Councils were still outstanding by end 2019. 

A number of departments falling under the Environment Ministry had shortcomings.

Adequate control procedures were lacking with respect to store items and fixed assets maintained by the Departments of Fisheries and Aquaculture, the Rural Development, the then Veterinary and Phytosanitary Regulation, as well as State environment agency Ambjent Malta. 

No legal action was taken by the then Veterinary and Phytosanitary Regulation Department against illegalities regarding the ownership of dangerous animals. 

An audit on the trade promotion scheme operated by Trade Malta Limited revealed instances of internal control weakness.

These included, amongst other shortcomings, departures from the entity’s established internal processes, inadequate verifications at both application and claim stages, as well as poor overall monitoring.

The head office within the then Foreign Affairs Ministry placed excessive reliance on overseas missions.

This, the NAO said, had been happening for years. 

The NAO said limited checking was performed on the respective accounts filed by the ministry. 

The Madrid Embassy, for instance, had problems when it came to inventory management, as well as hours of attendance and time off in lieu for staff. 

Internal controls on cash management at the Planning Authority were “weak” the NAO said. 

An audit on residential services in Gozo for the elderly found that overpayments of pension deductions had occurred due to delays in the processing of information provided by the Gozo Ministry to the Social Security Department. 

Finally, a lack of monitoring and control on overtime was noted at St Vincent de Paul Residence. 

The NAO said staff showed a tendency to avail themselves of sick leave immediately after the performance of overtime athletes the hospital. 

Another issue was the high accumulation of balances of time off in lieu of a number of employees.