Auditor finds 'serious shortcomings' in FTS business activities

An investigation by the Auditor General into the workings of the Foundation for Tomorrow's Schools (FTS) has revealed serious shortcomings in the way the foundation has carried out its business activities since its inception in 2001.

"Serious concerns arise from the fact that basic rules of good governance and accountability of public funds, as contemplated by the Financial Regulations, were widely disregarded or circumvented" the report says.

The shortcomings were preceded by other deficiencies committed by the Ministry of Education, which was previously responsible for the activities currently carried out by the foundation, the report adds.

The investigation was requested by three members of the Public Accounts Committee and focused primarily on issues related to the procurement of goods and services. The report was tabled in Parliament by the Speaker.

The 105-page report states that the statute of the foundation included a number of provisions intended to ensure proper financial management and accountability. The foundation was duty-bound to follow procurement procedures as regulated by the Public Service (procurement) Regulations.

The Auditor General listed more than 10 shortcomings that came to its attention in the course of the investigation.

He said the foundation:

¤ Valued contracts at sums closely bordering the statutory Lm20,000 limit in full knowledge that the final value would inevitably exceed this amount;

¤ It did not resort to the time-tested practice of long-term period contracts where indicated;

¤ The foundation ignored repeated advice from the Permanent Secretary for Finance and the Director General Contracts;

¤ It disregarded the spirit of tendering rules by tendering for part of the works and then awarding significant subsequent works to the same contractors without further tendering;

¤ The foundation carried out extensive works through the use of direct orders without prior clearance from the Ministry of Finance, without competitive bidding, and with advance payments on acceptance, at times amounting to 50 per cent of contract value.

Further findings showed that the foundation had overstated direct labour of certain works, with additional unrealistic overtime bills.

It negotiated extra works in progress and, at times, effected payments even when its own project managers and consultants failed to certify the works.

The foundation also failed to effectively plan the works carried out. This "resulted in ineffective project management and execution and contributed to subsequent modifications in the works undertaken". Substantial changes in quantities and the addition of new items usually led to considerable variations, negatively effecting budget allocations.

The foundation was also found to have issued local purchase orders inordinately with the practice being sanctioned by the board's rash open-ended policies and directives.

The investigation revealed that the foundation commissioned a number of projects by departmental tender where agreed prices and rates were considerably higher than the tender estimates or comparable market prices.

It appointed project managers and/or procurement officers who lacked adequate skills and experience in undertaking strategic procurement activities. As a result, interpretation and application of standing financial regulations were ignored.

The report concluded that the results of the investigation indicated that the foundation did not endeavour to apply good financial practice, control or governance. It never perceived the need to remain constantly vigilant to ensure that risks to financial control and corporate governance were well managed and to avoid irregularities that detracted from its other achievements.

The auditor made seven recommendations, six directed to the foundation and one to the Ministry of Education.

He recommended that the foundation implement more rigorous methods and control mechanisms that meet the requirements of both public procurement and financial legislation and adopt transparent procedures in the award of tenders.

The foundation should institute an efficient approval and review process whereby all projects were supported by appropriate documentation that described the scope of the project, clearly reflecting a cost-effective approach and approval at the appropriate level within the foundation.

It was also recommended that the foundation operate an effective project control mechanism, assigning responsibility and accountability to project managers to ensure that works were carried out effectively and within budget. It should also carry out a formal evaluation of works on completion of each project.

The foundation was called upon to refrain from appointing inexperienced or untrained personnel in key positions of trust and/or from engaging consultants who lacked the necessary experience in the field of work or were not knowledgeable of public tendering processes and regulations.

It should also thoroughly revise the "high-level cash flow projects" presented in March last year so that projected expenditure would realistically reflect actual market rates that prevailed from time to time.

Finally, the NAO recommended that the Ministry of Education appoint an internal board that would have the delegation, amongst others, to monitor the works carried out by the foundation and determine whether these met expectations and required standards.

In drawing up its report, the auditor evaluated works carried out in 13 schools in Malta and one in Gozo.