Audit firm flagged accounting error to Progress Press in its bid for Malta Enterprise grant

Audit firm PwC had flagged an accounting error found in Progress Press's business proposal to obtain a cash grant from Malta Enterprise on the purchasing of printing equipment.

Testifying in court on Monday, two auditors from PwC explained that the company was tasked with carrying out an audit for Progress Press, including a tax compliance exercise.

One auditor, Simon Flynn, said that he saw an application for a cash grant from Malta Enterprise during the audit. The application had already been approved by then, but the auditors noticed that consumables were listed in the application.

This created an accounting problem. Since consumables are not fixed assets, they cannot be capitalised, he said.

PwC flagged this to Progress Press's finance committee, telling them that consumables cannot be added on to fixed assets. The consumables were eventually separated, and PwC advised the company to flag this issue with Malta Enterprise.

The company's financial statements were adjusted for this too, with a disclosure distinguishing between the consumables and fixed assets.

Flynn said that Progress Press had been informed that it could not take the Malta Enterprise grant up-front as the application was filed on three printing machines, not one.

Progress Press agreed with this.

According to Flynn, credit notes were found during an audit carried out in 2015 covering the previous year. It was found that Kasco Ltd issued credit notes to Progress Press after an invoice was first issued on the consumables. 

This meant that Progress Press was charged twice on the purchases, but the credit note would cancel out the invoice.

"At the end of the day, the correct accounts were issued," Flynn told the court.

He emphasised that PwC was in no way involved in the application itself.

Another PwC auditor, Kurt Sciberras, testified in court on Monday. He verified that his department was tasked to carry out an audit on the accounts and financial statements belonging to Progress Press between 2010 and 2017.

He said that during the 2013 audit, the team noted that the company purchased equipment and that there had been a cash grant obtained from Malta Enterprise. 

The company asked for the application, and then requested to Progress Press's finance committee that the consumables and fixed assets be split, as international accounting standards outline that consumables cannot be classified as capital expenditure.

When a second machine was purchased from Kasco Ltd, the expenses were reported accordingly, Sciberras said.

Monday's court sitting saw Magistrate Donatella Frendo Dimech preside over the case against former OPM chief of staff Keith Schembri, his father Alfio Schembri, business partner Malcolm Scerri and Kasco Group financial controller Robert Zammit.

All three were present in the courtroom today, except for Keith Schembri as he is undergoing medical treatment for a serious medical condition.

One of the cases under consideration was the purchase of printing machinery by the Allied Group from Kasco for the new Mrieħel printing press.

Inspectors Anne Marie Xuereb and Joseph Xerri are leading the prosecution, with lawyers Elaine Mercieca Rizzo, Sean Scerri de Caro and Andrea Zammit representing the Attorney General’s Office.

Lawyers Edward Gatt, Mark Vassallo, Ishmael Psaila and Shaun Zammit are representing the accused.