Minister suggests accountant/auditor be reported to Accountancy Board

An examination by the House Public Accounts Committee of irregularities in local councils’ accounting procedures, highlighted by the Auditor General’s reports for 2008 and 2009, at one stage led to Finance Minister Tonio Fenech suggesting that the Local Councils Department should report to the Accountancy Board the “unethical and unprofessionl behaviour” of an accountant who was responsible for the accounts of a joint committee and acted as the auditor of the same committee.

The committee heard that the Auditor General had identified a long list of weaknesses in the keeping of financial records and administration by the local councils. It noted that 35 councils had been issued with qualified audit reports.

Four councils – those of Fgura, Sliema, Żejtun and Żurrieq – had not submitted their reports in time. The local council had declared that it did not prepare financial statements for the year reviewed.

The Auditor General indicated that no conclusions could be reached with regard to the financial report of the St Julians local council because of the discrepancies found in the accounting records and statements. It was noted that there was a €5-million-discrepancy in the fixed asset value indicated in the fixed assets register and that in the nominal ledger. There were differences in the amounts for depreciation, which the council put at €82,000 against the amount of €14,000 estimated by the auditor. An amount of €275,000 was entered in the council’s books for a grant of €331,000 received from Mepa.

Answering a question raised by Evarist Bartolo (PL), the Auditor General’s office indicated that it did not identify the consistency of the difference of the asset value noted in the St Julians council’s books. The Department of Local Councils said that no action had so far been taken. Mr Fenech stated that the councils should be asked to review their accounts and if necessary reopen them so that the necessary corrections could be entered. Mr Bartolo indicated that the council had a negative past track record and had also received funds for a waterpolo pitch which was never built.

In the case of the Marsascala local council, the Auditor General noted that at times there was loose control of monies collected in some events as these were passed directly to helpers.

PAC Chairman Charles Mangion asked what action was being taken because councils were working at a deficit. The Auditor General’s office also confirmed that the local councils’ accounts were not being operated on accrual basis due to lack of competence of the accountants engaged. These were not delivering a professional service.

The committee was told that this problem was expected to be resolved since the grouping of councils for accounting services necessitated entering into tender procedures from established accounting firms rather than private individuals.

Weaknesses in the financial accounting for debtors consisted in having debts on the books which were old debts. Reconciliation of these figures with those of the joint committees was not possible since an end-of-year printout was not being kept. Moreover, a number of complex systems were followed by the councils.

The Department of Local Councils had held several meetings to ensure that the weaknesses identified by the Audit Office were being addressed. It had also issued a working list for councils to work on. For the submission of financial statements for 2010 the Department had encouraged councils to adhere to regulations and standards and although it had given a number of extensions to councils to allow them to regularise their positions, councils have already been informed that no such leniency would be adopted for the coming year.

The councils of Żebbug and Mqabba had been fined for failing to provide such statements in time. The fine imposed on the Żebbuġ local council exceeded €12,000.

There were instances where some irregularities identified have already been referred for police investigation. In one instance, although tenders were issued correctly and payments made accordingly, the service rendered was not in line with the tender requirements.

Councils were fined on shortcomings. In the Fgura local council case, it was found that the procedure in tender allocation was not followed and a fine was imposed. The council explained to the department that such a fine would have ruined the council and after discussions the penalty was reduced substantially and the council allowed to pay in instalments.

Concluding the sitting, Dr Mangion asked that a report be prepared by the Local Councils Department and the Auditor General to see what action had been taken by the defaulting councils on the weaknesses identified for 2008 and 2009.