Weak internal controls, unsatisfactory project management highlighted in NAO report
Annual Audit Report on public accounts shows total revenue in 2023 rose by 15%, reaching over €7.9 billion
A National Audit Office Report has highlighted weak internal controls, lack of standard operating procedures and unsatisfactory project management.
The 2023 Annual Audit Report on public accounts was tabled in the House of Representatives during Wednesday’s plenary session.
According to the report, the 2023 financial year saw Malta’s total revenue rise by 15%, reaching over €7.9 billion. This growth was largely driven by increases in direct taxation (€425 million, up 12%), indirect taxation (€125 million, up 7%), and loans (€492 million). The surge in revenue contributed to a surplus of €249 million, reducing the negative balance of the Consolidated Fund to €790 million by year-end, compared to €1.04 billion in 2022.
The report did identify and raise concerns over discrepancies in revenue reporting. For instance, the Residency Malta Agency failed to transfer €537,000 to the Consolidated Fund due to an oversight, which the Treasury confirmed would be corrected in subsequent reports.
The NAO report emphasised on the need for stricter reconciliation measures to ensure revenue accuracy and completeness
Increased expenditure and rising debt servicing costs
Recurrent expenditure for 2023 reached €6.7 billion, marking a 2.9% increase over the previous year. This included public debt servicing costs of €696 million, which surged by 23%.
Capital expenditure, after two years of decline, rose by 31% to exceed €1 billion, with the NAO underscoring a renewed focus on investment projects.
Key areas of increased spending included operational and maintenance expenses, particularly in the health (€18.2 million), energy (€10.6 million), and education (€5.1 million) sectors. However, the NAO cautioned against the growing burden of public debt servicing, which could strain fiscal resources if not managed prudently.
Report identifies compliance issues
The report identified several instances where ministries and departments failed to meet compliance requirements or submit necessary information on time.
These delays impacted the audit scope and hampered the NAO’s ability to provide a comprehensive assessment.
Outstanding interdepartmental balances of €338.4 million from 2020-2021, arising from a flawed transition to the Corporate Financial Management Solution (CFMS), remain unresolved, according to the NAO.
Suspense accounts, used temporarily to hold transactions requiring further investigation, also posed challenges. By the end of 2023, unmatched transactions totalled €340.8 million, distorting financial reporting.
The NAO recommended clearing these accounts regularly and generating comprehensive year-end reports to maintain an audit trail.
Additionally, the report pointed to weak project management practices across several ministries. These included delays in project completion, cost overruns, and inadequate planning that led to inefficiencies and missed opportunities for optimal resource allocation.
Strengthening project management frameworks and adopting clearer accountability mechanisms were recommended to improving governance.
Government investments
The government’s investments in 2023 included a wide range of initiatives aimed at improving economic resilience and addressing critical sectoral needs.
A notable example is the €500,000 investment in KM Malta Airlines Ltd as part of the national airline’s restructuring.
The government also invested €3.9 million in Euro coin circulation through the Central Bank of Malta, which brought the total value of Euro coins in circulation to €102.8 million by year-end. Another significant investment was the allocation of €14.3 million to the International Finance Corporation.
Historical loans were also featured in the NAO report. The Water Services Corporation reduced its loan balance to €3.4 million with a partial repayment of €250,000, while the government wrote off €112,397 owed by Mariam Al Batool School.
The NAO called for a review of outstanding loans, many dating back to the 1980s, to determine their collectability and recommend write-offs where appropriate.
NAO recommendations
In its report, the NAO also listed recommendations focused on strengthening financial governance, as well as operational efficiency.
Among suggestions put forward, the NAO recommended clearing suspense accounts promptly and ensuring accurate financial reporting, implementing robust reconciliation processes for revenue-generating entities, enhancing compliance with financial regulations to avoid audit limitations, monitoring public debt servicing closely to mitigate fiscal risks, and reviewing historical loan balances to resolve or write off uncollectable amounts.
The report also highlighted the importance of timely data submission by ministries and departments to facilitate thorough audits.
While the report acknowledged Malta’s progress in revenue collection and fiscal consolidation, it outlined the need for systemic improvements in financial management.
Issues such as unresolved interdepartmental balances, discrepancies in investment reporting, and the increasing cost of debt servicing reflected gaps that require immediate attention.
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