NAO report: 54% of local government bodies' financial statements contained mistakes, omissions

Over half of local governments’ financial statements contained misstatements or omissions according to a National Audit Office (NAO) report.

These governmental bodies include 31 local councils and five (out of six) regional councils.

While acknowledging overall progress compared to last year, the NAO report outlined a number of shortcomings with regards to the workings of local governments.

The NAO’s report notes three main weaknesses noticed in this exercise. One of the weaknesses are errors of an accounting nature, which include improper classification of income, expenditure and assets. The other weaknesses are “inappropriate fixed asset management” and “improper administration of accounts payable and accounts receivable balances.”

The report highlights the progress made by local governments in submitting audited accounts, with 60 local councils, six regional councils, and the Local Councils Association providing their accounts to the NAO by mid-October 2023.

However, concerns were raised regarding eight local councils that did not submit their audited accounts by the specified deadline. 

Additionally, four local councils did not respond to the Management Letter sent to them, which outlined various shortcomings, prompting the Auditor General to deem this lack of response as unacceptable. The four local councils are those of Għasri, San Ġwann, Ta’ Xbiex and Ħaż-Żebbuġ.

The number of local councils that didn’t submit their accounts and those who didn’t respond to the Management Letter was reduced by exactly half, according to last year’s report.

“This is totally unacceptable,” Auditor General Charles Deguara wrote, “especially since such attitude on the part of the Councils involved goes against the fundamental values of transparency and accountability – both main pillars of good governance, the promotion of which remains our principal objective.” 

The inefficient and economic use of Councils' allocations is also highlighted as a concern, leading to either budget overruns or excessive savings.

Other specific issues outlined in the report include the fact that the audit reports of 36 Local Authorities were qualified with an 'Except For' audit opinion, indicating that certain areas could not be audited due to insufficient supporting evidence.

The NAO also highlighted that there were Emphasis of Matter Paragraphs in the auditor's report for five Local Councils, highlighting a material uncertainty related to going concern, implying that they might not meet their financial obligations.