Wanted: zero tolerance on corruption

The stark reality is that all is not rosy in our garden. Just remember, for instance, the misgivings in administration of public funds as reported by the National Audit Office on a number of government agencies. Can Malta turn over a new leaf in this legislature to avoid the scathing remarks disclosed in the past audits conducted by NAO?

Everyone knows it is important for a young nation to undergo a reality check and focus on how to start repaying the mountain of debt which, together with government guarantees, now exceeds 90% level of GDP. There is no more family silver to sell or to pawn as this has been sold under the baton of the privatisation unit during the past decade. Regrettably, with both Air Malta and Enemalta being the last bastions of government owned-assets, their values do not feature highly on the auction league.

Still, we are constantly reminded (even by EU) that our rate of growth is exemplary at 1.9% when compared with Med countries which are either shrinking or showing zero growth. The fly in the ointment is workers' participation rate - this is amongst the lowest in Europe as regards females (only 44%) so one can argue that with a lower participation rate then it stands to reason that automatically our unemployment rate at 6.8% is comparatively low. One still recalls that last year, citizens have been subjected to a slew of golden pledges all wrapped up in glossy leaflets distributed at homes forming part of a carefully-worded manifesto.

Yes, it is no exaggeration to say that all political parties had promised us a pot of gold at the end of the rainbow. Give us your coveted Number One and the lottery prize is yours... but then, party propaganda forgets to refer to the warnings uttered over the years in the modified audit reports printed in green type by the Auditor General.

In my article I wish to give readers a collage of salient recommendations issued to Parliament by the NAO to address the shortcomings in the governance and general administration of public funds. To start with, one cannot omit to mention scathing reports for 2011/2 issued last December, wherein NAO cut no corners in presenting an impressive dossier spiced with instances where mismanagement was observed.

Studying the report in an objective manner and keeping in mind that the general service spends millions each year to employ qualified internal control officers to observe a solid procurement policy, one still meets with an indictment of bad governance and maladministration. Which begs the question whether we learnt any lessons from the slack administration which has led Greece to ruin.

Cynics may well ask if it is one massive "cash and carry" treasure trove where taxpayers' monies are spent in a manner that, for instance the oil procurement scandal does send shivers down the backs of the honest taxpayers who strive to pay up to the last cent to Caesar.

It is no exaggeration to state that with the lax controls regularly encountered by NAO officers one can easily conclude that in some ministries they recount a tale of unbridled incompetence. In some instances it reaches alarming levels costing the nation in the realm of millions. All this is happening at a time that we are contributing our share to assist Greece, Ireland and Portugal by loaning them monies to help them recover their sluggish economies during the post 2008 recession.

To start with, one can be excused for sympathising with the hapless taxpayer who can be sent to jail for not filing a VAT return when at the same time we read how in the 2011 audit commentary a particular ministry has rode roughshod over regulations and issued a staggering €45 million in direct orders. This contrasts with stiff regulations issued by the Contracts Authority in all its public tender documents. It is common knowledge that it prints copious notes and regulations apart from imposing penalties on any infringements. Certainly, it is a case of two weights and two measures.

It is curious to note how no heads did roll when NAO reported that in three instances, the Service Agreement between the government entity and the respective service provider was signed before the relative direct order approval was obtained, while in the other instance, the entity concerned raised a purchase order, thus committing itself to purchase prior to the same approval being granted. Regulations state that only after an agreement is signed that the contractor is engaged and can start operations otherwise it is a case of putting the cart before the horse.

Again, it is well prescribed that direct contracts in excess of €6,000 may only be granted after the entity obtains written approval from the Finance Minister but regrettably, this rule was broken in a number of instances. It goes without saying that if a ministry wants to appease a supplier by issuing a direct order, this can be justified on the pretext that it declares the matter was urgent.

Even if the service is really urgent, at least three authentic quotations are strongly recommended for sake of transparency particularly if EU funds are concerned. To focus the reader's mind on such irregularities, let me start by extracting details from the 2011 audit report on some of the big spender departments such as health and Wasteserv.

The Auditor General raised several points of concern with regards to Wasteserv. An audit of capital and recurrent expenditure incurred by Wasteserv Malta Ltd revealed, "long delays and substantial cost variations on capital projects". Again, one observes another big spender - i.e., the hospital Mater Dei with a budget allocation of €97,206,300 (for emoluments and supplies) where NAO pointed out that it discovered an excessive amount of expired stock of medicinal items.

Other areas of concern highlighted by the report include a lack of compliance with procurement regulations, expired contracts, as well as inadequate controls over expenditure incurred for specific services rendered to the hospital. Two years ago, NAO was requested by the Public Accounts Committee to carry out an investigation of the contract awarded to Danish company BWSC to build an extension to the Delimara Power Station.

This contract, which amounts to around €170 million, has created a number of controversies because it was prototype equipment running on highly polluting heavy fuel oil. In the course of its detailed audit, NAO has identified many serious irregularities and shortcomings and concluded that "these allegations raise serious doubts and concerns, more so in those cases where insufficient explanations were given during the course of the inquiry which could dispel such concerns. Indeed, it was felt that the evidence given by certain stakeholders, especially Joseph Mizzi (BWSC local agent) who was summoned by NAO on three separate occasions, tended to be somewhat evasive, sometimes bordering on non-collaboration, very often citing lack of memory when confronted with certain direct questions".

But then one cannot blame BWSC or Enemalta officials who wanted to collaborate evidence but feared for their jobs in the absence of a Whistleblower Act which is now in place. Informers expect to be protected if they stick their neck out to disclose corrupt practices, citing a typical case of the whistleblower Philip Rizzo, who uncovered the Rita Schembri scandal. Very briefly; the case involved the alleged meeting by Schembri, the IAID director-general, to discuss issues on private business for gaming company Far East Entertainment plc which she hosted in her government office in Strait Street, Valletta concerning a bid for the acquisition of 60% of Vittoriosa's Casinò di Venezia.

Ideally it makes sense that the government considers arming the Auditor with more powers since at present it has limited powers and can do with better tools to unearth corruption and sleaze. History reminds us how unscrupulous businessmen and politicians hide their tracks well and the only way to catch them is either if one of them spills the beans and gives the game away as criminals do when they fall out with each other; or if investigators are empowered to hack into their private and confidential emails or by tapping their phones and by having access to their bank accounts around the world.

After hearing so much shocking news on the kickbacks paid for a decade in the oil procurement division of Enemalta it is recommended that the Auditor General is given more teeth. How can we succeed to become another Singapore with its zero tolerance for corruption? As always, fraud lurks in situations where there is a motive, a lack of transparency and particularly in the big spender department/ministries where non-compliance with procurement regulations can lead to abuses. As a young nation with responsibility to account for taxpayers' monies, no effort should be spared by the newly-elected government to tighten up on internal controls otherwise it will always be a question of see no evil, hear no evil.

In the end this laissez-faire attitude unwittingly leads the way to fiscal ruination.

George M. Mangion is a partner in PKF an audit and business advisory firm.

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