16 local councils in financial trouble as they owe more money than they have
16 local councils are in financial trouble as at the end of 2023 they owed more money than they had, a report by the National Audit Office has highlighted.The NAO said in a report that there were 16 local councils which ended the 2023 financial year
16 local councils are in financial trouble as at the end of 2023 they owed more money than they had, a report by the National Audit Office has highlighted.
The NAO said in a report that there were 16 local councils which ended the 2023 financial year with a negative working capital - something which was the office said was concerning.
A negative working capital comes from a comparison between one's current liabilities - ergo, payments that are owed - and one's current assets - ergo, the sources available to honour a liability.
"Current assets are those assets that can be easily liquidated within the next year, such as stocks and debtors, whilst current liabilities include any debt that needs to be settled within the year, such as creditor balances and short-term loans," the NAO explained in its report.
Having a negative working capital indicates that the council in question "is likely to face difficulty in paying back its obligations," the NAO observed.
What the office found concerning is not only that the number of councils facing financial difficulties had increased when compared to 2022, but also that the financial situation of all of those already in a deficit, with the exception of three, worsened rather than improved.
The local council in the worst financial position in this regard is Qormi, which has a negative working capital of €399,034. This is a significant change from the previous year, where its working capital stood at €668,951.
The Għarb local council registered a negative working capital of €224,375, the Attard local council registered a negative working capital of €217,980, while similar figures of €217,225 were registered for Mosta and €215,882 for Birkirkara.
The other local councils registering a negative working capital were Kalkara (€188,266), Rabat (Malta) (€160,522), Pieta (€134,602), Żebbuġ (Gozo) (€121,047), Xgħajra (€83,831), Għargħur (€70,905), Dingli (€50,402), Santa Luċija (€22,003), Nadur (€8,075), and Rabat (Gozo) (€2,441).
The Eastern Regional Council also registered a negative working capital of €161,117.
Out of these, the local councils of Attard, Dingli, Mosta, Nadur, Qormi, Rabat (Gozo), Rabat (Malta), Santa Luċija, and the Eastern Regional Council all had a positive working capital at the end of 2022.
During this financial year, nine out of the councils were led by Labour Party majorities and four were led by Nationalist Party majorities. Two had no party with a majority, while the Eastern Regional Council is led by a former PN mayor.
Meanwhile, just two local councils went from having a negative working capital at the end of 2022 to having a positive one at the end of 2023: the Gozitan villages of San Lawrenz and Sannat.
More concerning to the NAO was that two local councils and a regional council - all of which feature in the above list - ended the year with negative reserves. This means that these entities do not have the necessary funds to make up for the deficit that they have reported.
These were the local councils of Kalkara and Xgħajra and the Eastern Regional Council.
"This Office considers the negative financial situation of the three Councils in question as unacceptable and for which prompt remedial action is required," the NAO said.
31 local councils reported a deficit for the year 2023 - but all bar the aforementioned three had enough cash in reserve to be able to cover the deficits that they reported.
Across the board, auditors also found poor internal controls and a lack of substantiating documentation in 24 local councils and 3 regional councils.
All of this does not include anything about 11 local councils which failed to submit their audited financial statement before the NAO's established deadline of mid-October 2024. These were the councils of Birgu, Fgura, Floriana, Għasri, Ħamrun, San Ġiljan, San Ġwann, Ta' Xbiex, Valletta, Xagħra, and Xewkija.
In the case of Birgu, Ħamrun and San Ġiljan, the audits of both financial years 2022 and 2023 were still pending by mid-October 2024. Moreover, in the case of Birgu and Ħamrun, the audit for financial year 2021 was also not yet concluded, with the former also having those of 2019 and 2020 still in progress.
"This Office considers the situation unacceptable, as it demonstrates lack of accountability by the respective Council," the NAO said.
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