Auditor raises questions on educational value of SmartCards use

The Auditor-General in a report issued today has questioned the effectiveness of the SmartCard scheme, which is meant to be restricted to the purchase of educational items

In his annual report on public funds, the Auditor-General said that he considered the administration and monitoring of the scheme as "rather ineffective and the costs in administering the Scheme could be outweighing the benefits derived."

This, he said, was particularly due to the fact that purchases made by students using the SMG Smart Cards were not itemized. Therefore, there was no proof that funds were being used on educational material and equipment, as specified in legislation.

"Furthermore, it is unclear whether a number of retail outlets participating in the Smart Card Scheme, some of which were paid substantial amounts during 2010, stock any items considered to be of an educational nature. In three cases in particular, the category (car hire and pharmacy) of the business itself sheds doubt on the respective retailers' eligibility to participate in the Scheme."

During 2010, payments to retail outlets which were categorised under sportswear, totalled €942,393. This was equivalent to 15% of the total payments effected to retailers in the year under review.

The percentage of funds allocated to the Scheme spent on sportswear was on the increase, since, as reported in 2009, purchases of sports clothes and sports shoes effected by the Smart Card during scholastic year 2008/2009 amounted to 11% of the total payments to Scheme participants.

According to the Students' Maintenance Grants Regulations, there was meant to be monitoring of retail outlets participating in the Smart Card Scheme in order to curb abuses. This was expected to be achieved through monthly inspections carried out by officers appointed by the same scheme's Board. €8,786 were paid to inspectors for verifications performed during 2010. However, a review of the inspection reports showed that the monitoring carried out during 2010, was 'inadequate and unsatisfactory.'

The board had claimed that items of considerable value falling outside the Scheme, purchased by the inspectors, were returned to the retail outlets. However, audit testing carried out on a sample of five alleged goods bought by inspectors revealed that no payments were withheld to the retailers, neither in the month during which the said infringement was noted, nor the subsequent month. Therefore, it could not be ensured that items purchased, if any, were actually returned to the shop.

A report for September 2010 submitted by an inspector alleged that the latter purchased a camera from one of the retailers visited. However, according to the supplier's statement, no transactions were effected by Smart Card during the foregoing month. This, the auditor said, "again raises doubts on whether the inspections were performed at all".

Fourteen out of the 20 retail outlets listed on the May 2010 report endorsed by another inspector also featured, in the same order, in the report for the following month signed by the same inspector.

"The validity of inspection reports is once again questioned, since it is highly unlikely that the same officer was intentionally instructedto revisit 70% of the retail outlets targeted to be inspected in the previous month."

The auditor said the inspections performed in 2010 were not properly evidenced in the reports submitted. The following shortcomings were noted, again casting doubt on the validity of these reports:
i) The date and time of inspections was not evidenced in any of the reports.
ii) The reports did not bear the date when they were compiled by the inspectors.
iii) Almost all reports failed to indicate the non-educational goods the inspectors tried to purchase from the retail outlets.
Furthermore, the situation was considered to have deteriorated in 2011, since, for example, the reports submitted for inspections carried out in April this year, which were undated, did not even evidence the name or signature of the officer performing the inspection.

PROBLEMS IN ADMINISTRATION

In his report, the auditor said the original Bill of Quantities for the provision of the Smart Card Scheme attached to the Letter of Acceptance issued in 2001, indicated the contract value as €66,268, out of which a substantial amount was related to set-up costs.

During 2010, payments effected to the Management Company for the administration of the Scheme totalled €166,869 (VAT included). Apart from an adjustment due to the change in VAT rate from 15% to 18% and the substantial increase in the number of eligible students and retail outlets participating in the Scheme, the difference in amounts paid was a result of variations from the original tender document and the provision of new services not included therein.

According to the Bill of Quantities, the Management Company was to charge €0.23
(Lm0.10) (VAT excluded) per new Smart Card. However, during scholastic year 2010/2011, SMGB (the management board) paid €0.55 (VAT excluded) for each card issued to Junior College and University students, and €0.68 (VAT excluded) for the supply of cards intended for MCAST students. The invoice failed to explain the difference in rates applied.

The cost for replacement of cards was also set at €0.23 (Lm0.10) (VAT excluded) in the Bill of Quantities, but was charged at the rate of €1.05 (VAT excluded) in the year under review.

In 2001, the board agreed to pay the Management Company an operation and maintenance handling fee equivalent to 0.65% of the total turnover of
the Smart Card Scheme. Upon enquiry by the audit office, officers confirmed that the maintenance fee was increased to 1.1%, claiming that the difference was approved by the Contracts Department. Apart from the fact that no authorisations were provided as evidence during the audit, in the sample of four maintenance fees reviewed, the charge ranged from 1.33% to 1.41% of the total turnover. Although
the increase in the percentage charged appeared negligible, the ultimate effect on the amounts invoiced each year is material when calculated on turnover, the auditor said.

The Management Company’s invoices for the year under review included items which did not feature in the original Bill of Quantities, such as, rental of equipment and staff, rental of office space, back office handling fees, usage of printer colour ribbons and web access for stipends office. In aggregate, the board paid €57,352 (VAT included) in respect of these charges during 2010. No documentation was
traced to the files reviewed justifying these items invoiced by the service provider.