None of the four local councils reviewed by the NAO this year respected procurement regulations in 2022, with some actively seeking to bypass tendering rules by splitting procurement into separate lots.

The National Audit Office found problems in the procurement methods used by Marsascala, Mdina, Mosta and Naxxar councils.

In some cases, the audited councils could not present receipts for purchases. In others, they paid more than they had agreed to.

Auditors found that Mosta and Marsascala councils often bought goods on the open market without bothering to obtain three different quotations. At times, procurement was fragmented into lots under a €5,000 legal threshold. By law, councils must issue a public call for all procurement that amounts to more than that limit, excluding VAT.

The procurement failings were among many more flagged by the NAO, which carries out compliance audits of a small sample of councils every year, as part of its broader remit of assessing councils’ financial probity.

Four local councils ignore NAO

Its broader assessment of councils’ financial statements also revealed concerns.

Four local councils did not bother to reply to an official letter flagging issues in their audited accounts, the NAO revealed.

Representatives of councils in Għasri, San Ġwann, Ta’ Xbiex and Żebbuġ (Malta) never responded to a management letter sent to them about their financial statements, earning a rebuke for accountability and transparency failures from Auditor General Charles Deguara.

“The irresponsible action by the defaulting councils needs to be urgently sanctioned and prompt remedial action taken to address this problem since it defeats the very purpose of such audits,” the NAO noted of the four councils.

Even among those councils that did reply, many – 20 – did not do so on time, while a further seven sent their reply to the government’s local government division rather than the NAO.

While four councils did not respond to management letters, they nevertheless reached a more advanced stage of the process than the Ħamrun and St Julian’s local councils, which completely failed to submit their 2022 financial statements to be audited.

Nevertheless, the NAO saw an improvement of sorts from the previous year, when 15 councils did not submit audited financial statements and nine did not bother to respond to audit feedback.

This year, eight councils failed to make the submission deadline.

The NAO’s assessment of local councils’ finances takes place annually and unfailingly finds a myriad of problems in how various councils manage their finances.

Councils are legally bound to submit their financial statements to the NAO. Private audit firms, appointed through public tenders, are then tasked with auditing those statements, with their conclusions then relayed to councils and assessed by the NAO.

31 get clean bill of health

This year’s report flags some repeat offenders.  Vittoriosa, for instance, has not submitted audited accounts since 2019, while Ħamrun has not done so since 2020. Swieqi and Valletta have yet to submit their 2021 and 2022 returns.

Thirty-one local councils received a clean bill of health from auditors, while 36 received an audit opinion with a modified opinion. The NAO noted that this represents progress from previous years. In 2021, for instance, just 25 councils received a clean audit opinion.

Five local councils – Birkirkara, Għarb, Kalkara, Sannat and Żebbuġ (Gozo) - face substantial liquidity concerns and auditors concluded there are uncertainties over their ability to continue as a going concern.

More councils register deficits

Local councils largely rely on government funding to operate, with funds disbursed according to the size of the locality. Large towns like St Paul’s Bay and Birkirkara pocket the largest amounts, with small villages and hamlets like Fontana and San Lawrenz at the lower end of the table.

Irrespective of the size of their allocations, there are significant wealth disparities between councils, with some holding onto reserves far higher than their annual government allocation and others scraping to get by.

Fontana, Għasri and Għaxaq councils, for instance, each have cash or cash equivalents equal to more than 300% their 2022 allocation of funds.

Others, like Kirkop, Marsa and Sannat, have a fraction of their allocations in the bank.

Perhaps more concerningly, 31 local councils ended 2022 in the red compared to the 11 that registered a deficit one year prior. However, all bar two - Kalkara and Xgħajra – had sufficient reserves to cover their deficit.

The NAO described the two outliers’ situation as “unacceptable” and said “prompt remedial action is required to improve the respective councils’ accountability”.

The single largest deficit was registered in San Ġwann, which registered a €183,514 deficit in 2022, ahead of Għajnsielem’s €119,435 deficit.

The NAO was also frustrated by councils’ continued struggle to fix problems with their internal control systems and listed several examples of incorrect bookkeeping and record keeping.

They range from accounting errors, to a failure to properly register fixed assets and a lack of regular reconciliations leading to years-long discrepancies in amounts recorded in accounts.

The NAO advised the government to consider hiring and managing a centralised pool of qualified accountants responsible for preparing councils’ financial statements, rather than relying on each council to do so individually. 

Its frustration was encapsulated in one line in the report which noted that many councils show “little interest in rectifying weaknesses identified during the audit process, at times opting to accept a qualified audit opinion year after year without taking any corrective action”.