NAO reveals gross shortcomings in Police General Fund accounts

The Malta Police General Fund (MPGF), set up in 1919 for the general benefit of the force, is a hotbed of shortcomings and malpractices and in serious need of an overhaul, if the Auditor General’s audit report on the fund, published earlier this week, is anything to go by.

The audit uncovered a lack of internal controls, misleading accounting information, serious shortcomings in record-keeping, discrepancies in records, discrepancies between money collected and bank deposits and a failure to substantiate handing over of cash.

Incredibly, although the law stipulated that MPGF was to submit its records to the NAO for audit annually, no financial records were ever submitted to the Auditor General prior to 2015, the year under review in this report.

The Auditor General noted that “in addition to non-compliance with the law, this fostered a culture of lack of controls, allowing malpractices to become embedded in daily operations, and which may now be hard to change”.

All members of the force, who joined after 30 November, 1919, are bound by law to make a mandatory contribution of €13.98 every three months towards the MPGF, which has been, to date, maintained by the Commissioner of Police (CoP).

No internal controls

The audit revealed that the internal control structure, over the receipt and handling of cash in particular, was inadequate and of considerable concern to the NAO.

Checks carried out made it amply clear that no monitoring was in place to ensure that controls were properly designed, executed and effective.

The audit identified the following internal control failures within the MPGF:

•          No proper accounting records maintained.

•          No segregation of duties.

•          Lack of audit trail of cash and cheques received.

•          Receipt books used to record income from pensioners without a sequential number.

•          Financial records of prior years not submitted for auditing, in breach of standing regulations.

•          Lack of official documentation to indicate which expenses can be covered by the Fund.

•          Accrued income and expenditure omitted from the Final Accounts.

•          Cancelled receipts not supported by original copies.

When the NAO carried out its audit, the MPGF had no adequate books of account in place, and the only records available were two spreadsheets, both comprising payments and receipts.

One of the spreadsheets, drawn up by the fund’s previous accounting officer, contained numerous material discrepancies and included data that the NAO considered unreliable.

A new record drawn up by the current accounting officer was solely based on deposits and payments showing in the bank statements, with no consideration for unreconciled deposits and cheques.

The NAO concluded that “given the lack of official documentation supporting the contribution of €6.99 made for each member of the Force for the organisation of Christmas parties, the payments effected to heirs of non-serving members, as well as other disbursements relating to hospitality, the regularity of such transactions could not be ascertained”.

The NAO could not confirm, for example, the completeness of the amount of €3,980, recorded as received from the Malta Police Association for the 2014 children’s Christmas party.

The report said that reconciliations between amounts forwarded to the accounting officer and the money deposited in banks, were hindered by an inadequate audit trail and the lack of a unique receipt number for every transaction.

The Auditor General recommended that the CoP carry out a thorough exercise, to establish the contribution to be paid and to identify any unnecessary expenses.

“Related expenditure is also to be controlled through strict budgetary measures, taking immediate action in case of deviations,” the report said.

It is suggested that an official policy be drawn up, indicating what may be charged to the MPGF, as well as the respective amounts while another policy would highlight the nature, frequency and amounts receivable, enabling independent parties to carry out verifications intended to ascertain completeness of income.

Astonishingly, the NAO had to point out that the Malta Police Force needed to keep proper books at each point where money intended for the fund is received and to appoint someone with a basic accounting knowledge to oversee the implementation of the report’s recommendation, explain their importance, and ensure the changes are embraced by all.

Pensioners’ contributions

The NAO identified major shortcomings in the processing of pensioners’ contributions which, according to the financial records provided in the audit, amounted to €97,722 in 2015.

Despite the large amount of money involved, only two officers handled the cash.

The officer in charge of the contributions collected the money, retained custody thereof, issued receipts, carried out reconciliations, and maintained the respective records, while the accounting officer was responsible for preparing the bank deposit slips, the remittance of money into the bank and updating the spreadsheet.

This glaring lack of segregation of duties was a major concern to the NAO, which noted that these two officers were receiving a quarterly allowance for their work on the contributions since this was extra work over and above their normal duties.

Shortcomings in handling of cash

The Auditor General noted that, even though the payment of contributions was a statutory requirement and had to be paid by all members of the force, the settlement was still being effected by cash, instead of using safer methods such as direct debit.

As a result, the officer in charge of contributions is ending up with significant amounts of cash in hand.

“In addition to the risks prevailing with cash handling, this method does not ensure that all contributions due are collected in a timely manner, if at all,” the report said. “It also results in a significant unnecessary workload.”

MaltaToday sent a number of questions to Police Commissioner Lawrence Cutajar to try and understand how the force intends to address the concerns raised by the NAO. No reply was forthcoming by the time of printing.

Examples of incorrect payments recorded, and other administrative shortcomings

The amount of €37,196 reported in the Income and Expenditure statement as ‘Payments to heirs of non-serving members’ was overstated by €1,300 and €2,861 when compared to the amounts indicated in the spreadsheet supporting the accounts and the list of cheques respectively. It transpired that part of the latter discrepancy was due to the fact that a cheque, amounting to €1,561, was included in the spreadsheet but not in the list of cheques provided with the same record.

A variance of €7,804 was also noted between the amount paid to heirs of non-serving members, as per information obtained from the officer in charge of contributions (€28,092) and the amount of €35,896 indicated as paid in the spreadsheet.

According to a spreadsheet provided by the officer in charge of contributions, a total of 1,656 officers paid the contribution due for the said period by the 25 November, 2014, being the date of cheque to MPA. Based on this information, the related payment to MPA should amount to €5,779 and not €6,090 as shown in the financial records.

As indicated earlier on in this Report, the CoP makes a contribution of €6.99 per officer towards Christmas parties organised in the individual districts and stations. It transpired that while the payments effected tallied with the amount in the financial records, the number of officers showing in the calculation of contribution differed from those included in Human Resources (HR) records, despite that the list of contributions payable is drawn up by the same HR Section.

Moreover, it was noted that the amount paid in 2015 was €10,939; however, only €4,977 related to that year and just covered the contribution of 712 of the 2,162 employed as at 31 December, 2015. As a result, the amount of €4,620, being outstanding contribution featuring in the accounts, which covers only 661 employees, is significantly understated as this should be increased by an additional €5,284.

As per NAO’s workings, the payment due to MPA (€21,481), and that reported in the financial records (€19,174) varied by €2,307. However, given that information provided indicated only the deposit date rather than the collection date, the accurate amount could not be established.