Auditors PriceWaterhouseCoopers had advised a financial committee at Progress Press to separate consumables from fixed assets under a 2013 Malta Enterprise grant, thus bringing financial statements in line with accountancy standards.
High-ranking officials from the accountancy and auditing firm detailed the procedure when testifying on Monday at the compilation of evidence against former OPM chief of staff Keith Schembri, who stands accused of money-laundering and fraud.
Schembri, who is currently receiving medical treatment for a “serious condition,” together with his father Alfio, his business partner Malcolm Scerri and accountant Robert Zammit are all accused of financial crimes.
Progress Press, its former managing director and former financial controller are being charged separately in connection with the 2013 grant. The company is a subsidiary of Allied Newspapers, which publishes Times of Malta.
When proceedings resumed on Monday morning, in the absence of Schembri, Simon Flynn, a partner at PwC, said that the auditors were never involved in the Progress Press application for a Malta Enterprise grant in 2013.
Advice to 'split' accepted by company board
When auditing the printing company’s 2013 accounts, they had come across that application as duly approved, inclusive of consumables.
Since consumables cannot be capitalised and are to be accounted for separately from capital expenditure such as machinery, PwC advised Progress Press to effect a “split,” thereby separating consumables from fixed assets.
Advice to that effect had been tendered to a financial committee at Progress Press, consisting of Adrian Hillman, Louis Farrugia and Henry Hornyold-Strickland, as well as Claude Licari as financial controller.
The advice was accepted and PwC also told the committee to clarify matters with Malta Enterprise.
Farrugia had referred the matter to the company board and requested management to green-light the clarification, which ultimately led to the “split” between capital expenditure and consumables.
That distinction, in line with IS16, an international accounting standard, was also disclosed in the company’s public accounts and verified by the auditors in documents forwarded by Licari.
Prosecutors in the case against the company says Progress Press defrauded Malta Enterprise by including unspecified amounts of “consumables” in their funding application.
The Progress Press finance committee had also asked PwC to draw up a paper on how the accountancy exercise was to be effected.
Separating consumables from capital expenditure brought about a €1 million adjustment in the company’s financial statements, the court was told.
A second adjustment was needed to clarify that the grant was relative to the three machines purchased from Kasco and the total sum of €1.6 million was to be accounted for accordingly.
The witness also explained a somewhat complicated accountancy process whereby consumables purchased upfront, were “zeroized.”
When the business relationship between Progress Press and Kasco was terminated, there was a backlog of some €1.4 million in credit notes issued by Kasco to cancel double costs.
PwC Audit Manager Kurt Sciberras also confirmed the auditing exercise at Progress Press, adding that they had advised the printing company to clarify the position with Malta Enterprise after spotting the reference to consumables in the already-approved grant application.
“It was a matter of presentation in financial statements,” explained the witness.
Asked by AG lawyer Andrea Zammit whether PwC had prepared any further reports on the project, Sciberras said that in October 2016, the management at Progress Press had asked for a review of its position with Kasco, also to confirm any outstanding credit notes.
A draft report, “basically complete,” was duly emailed to Progress Press, which had not followed up with a request for a formal finalised copy.
Asked by Schembri’s lawyer, Mark Vassallo, about the composition of the finance committee at Progress Press, the witness said that the auditors had met that committee in July 2014, in the presence of Adrian Hillman, Louis Farrugia and Hornyold-Strickland.
Claude Licari was also present as the company’s financial controller.
During Monday’s sitting, the prosecution summoned a long line of police witnesses from the forensic science lab and anti-money laundering squad, each testifying about their various roles in the arrests and searches of the accused.
A number of representatives of local banks also presented documentation about bank accounts, sources of wealth and financial transactions of each of the accused.
The case, presided over by magistrate Donatella Frendo Dimech, continues on June 3.
Lawyers Edward Gatt and Mark Vassallo were defence counsel.
Inspectors Anne Marie Xuereb and Joseph Xerri, assisted by AG lawyers Elaine Mercieca Rizzo, Andrea Zammit and Sean Xerri de Caro, prosecuted.