Audit flags €338m in unresolved balances and widespread procurement breaches

Serious shortcomings in financial reporting, governance and procurement practices persist across government ministries, departments and entities, according to concerns raised by the National Audit Office (NAO) in its review of the public accounts for 2024.

Among the most significant issues highlighted are long-outstanding balances in suspense accounts linked to the transition from the Departmental Accounting System to the Corporate Financial Management Solution. These unresolved interdepartmental balances, dating back to 2020 and 2021, amount to a net total of €338.4 million. The NAO noted that no progress has been made on resolving the matter over the past two years.

The audit also found major weaknesses in bank reconciliations. A proper reconciliation between the Central Bank of Malta public account and the corresponding CFMS bank account was not being carried out. In addition, reconciliation issues dating as far back as 1992 remain unresolved, with the Treasury maintaining that addressing them is not practical due to cost and human resource constraints.

Internal controls over the receipt of dividends and fund transfers were found to be only partially effective. One notable case involved a €15.4 million dividend due to government from a public listed company that was neither traced nor received because of a pending disagreement between the parties.

The NAO also reported that it was unable to verify advances issued by government, including an advance of €11 million to Malta Air Travel Ltd that had already been repaid, due to delays in the provision of supporting documentation.

Beyond financial reporting, the NAO identified widespread weaknesses in control environments and compliance with regulations. Procurement-related breaches were described as pervasive across audited entities, while several departments continue to rely heavily on manual processes, increasing the risk of error and fraud. At the Armed Forces of Malta, paper-based systems led to duplicate payments of a one-off annual allowance to 35 officers.

A lack of segregation of duties was another recurring concern. At the National Sport School, a single officer was responsible for handling and recording all transactions for two separate funds, including cash collections and payments. Similar risks were noted at Active Ageing and Community Care, where only two employees verify large volumes of invoices from private residential homes.

Payroll weaknesses were also flagged, particularly at Resource Support and Services Limited, where inadequate checks resulted in incorrect payments and significant overpayments, including nearly €13,000 paid to one employee working reduced hours. The entity was also criticised for weak governance structures and poor personnel record-keeping.

Procurement and contract management failures featured prominently in the audit. The Welfare Committee continued to procure incontinence supplies worth more than €2.2 million under an agreement that expired three years ago, while other services were obtained through direct orders without the required approvals. The Civil Protection Department was found to have split procurement into smaller lots to remain below direct order thresholds, rather than issuing public tenders as required by regulations.

In several cases, entities failed to impose contractual penalties for significant project delays, including major construction works. Other breaches included entering into long-term lease agreements without fresh procurement processes or the necessary approvals.

The audit also drew attention to weaknesses in revenue collection and programme management. Gross outstanding arrears increased by €1.43 billion in 2024, while net collectable arrears rose by €577 million, pointing to persistent difficulties in recovering public funds. The Malta Tax and Customs Administration was found to have paid interest on VAT refunds even when delays were caused by taxpayer non-compliance, resulting in payments that may have rewarded non-compliant behaviour.

Budget overruns and ineligible spending were identified in several schemes, including cultural initiatives administered by the Ministry for Gozo, which exceeded allocated budgets year after year and funded expenses that did not meet eligibility criteria. Other audits revealed overpayments in social assistance schemes, with some recovery periods projected to span more than a decade due to weak monitoring.

The NAO warned that unless these issues are addressed, government will continue to face risks of non-compliance, financial misstatements and prolonged difficulties in safeguarding and recovering public money.