Weak controls on Valletta 2018 spending, says National Audit Office

An audit of Malta’s European Capital of Culture celebrations in 2018 have revealed weak internal controls over the spending of its €11 million-plus budget.

The National Audit Office said V18’s weak internal controls had revealed “a lack of accountability” with public procurement regulations not having been followed throughout the year of Valletta’s crowning as the capital of culture.

From a sample of €2.28 million in transactions, it transpired that the V18 Foundation had neither issued a departmental call for tenders nor obtained direct order approvals from the finance ministry.

The nature of these services essentially included the provision of lighting and sound, hire of crane, barge and generators, as well as catering services.

Furthermore, no information was available regarding the procurement of services, namely advertising, insurance, as well as project planning and design, costing €144,430, also included in the audit sample.

The Foundation claimed that the services were procured by the former executive director and that it was not in possession of supporting documentation relating to the respective method of procurement. “Due to this lack of audit trail, the NAO could not establish whether the pertinent regulations were followed,” the office said.

Another sample of €571,000 in service contracts were not covered by agreements between V18 and contractors, or supported by tenders or quotations. “It was unclear how, in the circumstances, the amounts invoiced by the suppliers could have possibly been verified for accuracy before processed for payment.”

Additionally there was a lack of fiscal documentation, and an absence of publication of contracts awarded. For example, by mid-March 2019, when the audit was in progress, no evidence was made available to the NAO confirming that contracts and the DOs awarded during 2018 were duly published in the government gazette as stipulated by rules.

In one case, V18 entered into a commitment with an artist to produce 13 artistic sculptures for the project entitled ‘Hekk Jgħid il-Malti’.
However, no contract was in place at the time. To address this, the Foundation executive director Jason Micallef signed an €80,830 agreement with the service provider for the sculptures. But approval for this direct order was not sought from the finance ministry.

“Correspondence dated 5 March 2018 indicated that approval from the Permanent Secretary had not been obtained before the service provider was engaged.”

And despite the agreement stipulating that 85% of the cash would be paid following the delivery of the artwork, and the remaining 15% after the artwork was dismantled, “the artist invoiced the Foundation the full amount of €80,830 in March 2018, and the invoice was settled a month later.” The artistic installations were to remain exhibited until 31 December 2018.

The Foundation claims the payment “was a genuine mistake due to pressures of work at a time when the only full-timer within the accounts unit had just left.”

Another observation from the NAO came on the ‘Pageant of the Seas 2018’, where a €52,000 contract for the supply of generators was issued before the endorsement of the agreement.

The V18 foundation said it “appreciates” the NAO’s observation that spending above €10,000 had to be covered by departmental tenders, but claimed that the spending was being carried out “whilst an intense, highly demanding, artistic programme was being implemented by the same Foundation which at last count had 419 events just in 2018.”

The V18 Foundation has since been replaced by the Valletta Cultural Agency (VCA).

“All necessary policies and frameworks to make sure that the public procurement rules are respected to the letter are now being created for the VCA to achieve optimal internal controls over expenditure from the very start,” the agency said.

“One needs to appreciate that such oversights may occur when working within a flexible and very tense and fluctuating environment such as the one the Foundation had to operate in. The Foundation did, however, take the necessary care in certifying all costs prior to making any payments. The VCA commits itself not to repeat such oversights so that any warranted measures are taken to regulate the relationship between the Agency and service providers.”