Valletta’s Local Council Finances: Missing documents, potential bankruptcy and contradicting statements – Auditor General

In local politics there was always this rumour going around that the finances of the Valletta Local Council under Mayor Alexiei Dingli were in shambles. The Labour Party seems to have never picked up on this story and the stories were never picked up by the press. However, these were not rumours and neither stories, but actual documented facts by multiple public authories.

During the same year when the Public Cotnracts Review Board and the Public Administration Committee reviewed the highly irregular tenders awarded to Alan Muscat’s (Galletta) cleaning company, Waste Collection, a notorious suspected criminal accused of drug-trafficking multiple times, the Auditor-General reported very serious issues with the finances of the Valletta Local Council.

Among the issues discovered were that the Council had significant financial problems and risked potential bankruptcy, missing financial statements, contradicting financial statements and gaps in the financial history. This was during the same time when the Valletta Local Council was issuing highly expensive public contracts to Alan Muscat’s cleaning company.

Read below the excerpt of the Auditor-General found here.

Valletta Local Council

For another year, since 2013, Valletta Local Council was not issued with an audit opinion, mainly because figures as reported in the financial statements were not adequately substantiated.

Going Concern

As at 31 December 2018, the Council had a net liability position of €521,402. This implies that the going concern assumption used in the preparation of the financial statements is dependent on:

• further cash injections, other than the annual financial allocation

• substantial savings in subsequent years

• the collection of debts due to the Council

• the continued support of the Council’s creditors

Any adverse changes in these assumptions would prevent the Council from meeting its financial obligations as they fall due, without curtailing its future commitments.

Grants

LGA was not provided with supporting documentation to ascertain that the recognition of grants in the Statement of Comprehensive Income was in line with International Accounting Standard (IAS) 20 – Accounting for Government Grants and Disclosure of Government Assistance.

Fixed Assets

The absence of a Fixed Assets Register (FAR) hindered LGA from obtaining reasonable assurance on:

• the existence and completeness of tangible fixed assets

• the completeness of depreciation charged

It was also noted that:

• recognition of tangible fixed assets

• calculation of depreciation

were not carried out in line with the accounting policy disclosed in the financial statements.

Receivables

Testing on receivables revealed that the balance was materially misstated due to:

• lack of proper accounting

• lack of reconciliations

No practicable audit procedures could determine the exact amount of misstatement within the trade receivables balance.

Cash and Cash Equivalents

Variances were identified between:

• balances as per bank statements

• balances as per reconciliations prepared by the Council

Additionally:

• a list of unpresented cheques was not provided for most bank accounts

Due to insufficient evidence, LGA could not obtain reasonable assurance on the recorded amounts.

Payables

Trade payables and accruals were:

• incomplete

• inaccurate

This was due to poor accounting and recording practices, resulting in a material misstatement of the Council’s liabilities at year-end.

IFRSs Compliance

The financial statements lacked appropriate disclosures regarding new and revised standards, including:

• IAS 1 – Presentation of Financial Statements

• IAS 24 – Related Party Disclosures

Furthermore:

• recognition, measurement, and disclosure of amounts under the Public Private Partnership scheme were not in accordance with IAS 39 – Financial Instruments: Recognition and Measurement.