€45 million dished out in direct orders

The figures were revealed by the Auditor General's Annual Audit Report for 2011, which scrutinized the approved direct orders to ascertain whether sound internal control systems are in place, whether appropriate authority covered them and whether applicable thresholds were exceeded.

The analysis of Direct Order approvals, granted by the finance ministry during 2011, highlighted a number of concerns. These included the incidence of retroactive approvals, as well as failure by entities to take the necessary actions to comply with Procurement Regulations, thus resorting to purchasing from the open market. Testing also revealed that at times such procurement was carried out without obtaining any quotations to justify the selection of the service provider.

The Finance Ministry provided the National Audit Office (NAO) with a list of all direct order approvals granted during the year 2011, totalling 1,203 approvals, with a total value of €45,417,514 (excluding VAT).

The finance ministry granted retroactive approval for direct orders in four out of 53 cases tested, representing 8% of the selected sample and totalling to €302,566.

In three of these cases, 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.

It also transpired that, in one case, full payment of €54,156 was made before such approval was obtained, while in the three other cases, the invoice had also already been received, in two of these instances the bill was partly paid.

When a government ministry wants to appoint a service provider directly, this can only be done with the right justification and if the contract does not exceed a certain amount of money.

Approval must be obtained from the finance ministry, with such approval indicating reasons justifying this approach. Each service must be backed by a signed agreement.

Legal Notice 296 of 2010, Public Procurement Regulations 2010 (PPR), stipulates that purchasing by contracting authorities whose estimated value is between €6,000 and €120,000, "the equipment, stores, works or services may be procured after a departmental call for tenders or after publishing a call for quotations in the Gazette."

However, higher thresholds are stipulated in the case of particular entities and public contracts.

Direct contracts valued in excess of €6,000 may, solely in exceptional and urgent cases, be placed by any contracting authority after the entity obtains written approval from the Finance Minister.

This implies that the Ministry of Finance, the Economy and Investment (MFEI) cannot approve requests for Direct Orders that are submitted retrospectively.

Before Direct Order approvals are granted, entities are strongly recommended to issue a call for quotations or obtain at least three quotations, where applicable, for the sake of transparency.

Auditor General highlights series of shortcomings in public funds management

The Auditor General's Annual Audit Report for 2011, summarised the conclusions reached following Financial and Compliance audits, carried out on all governmental ministries, departments and across government-wide activities.

Most audit reports under the ministerial portfolios include a brief description of the relevant activities, roles and operations of the entities under review, the findings or outcomes of the audits, the shortcomings identified, compliance issues, recommendations and management comments.

In a biting report tabled in Parliament on Monday, the National Audit Office (NAO) highlighted a series of shortcomings in the management of public funds in a 415-page dossier.

Apart from the staggering €45 million in direct orders, the review also showed that most entities failed to reach government's budgetary target of reducing arrears in 2011 by 10%.

Furthermore, the NAO said that the improvement noted last year regarding the annual submission of returns was not maintained, since a total of 14 Departments defaulted from complying with the rules.

Good Causes Fund

The report noted that the Good Causes Fund, administered by the Finance Ministry, had insufficient documentation to show how funds granted to beneficiaries were used between 2006 to 2010.

Other shortcomings included funds distributed before completion of projects, receipt of funds not always backed-up by a signed declaration from the respective beneficiaries, and incomplete application forms, if at all.

Health Ministry

In one of the most blatant cases of financial mismanagement, a report on Mater Dei Hospital's wage bill showed the amount budgeted for allowances and overtime was overshot by more than €700,000 in 2011. The review showed that salary payments of Consultants were not substantiated with records of attendance and substantial amounts are expensed on staff allowances, with the highest allowance paid to a Consultant in 2011 exceeding €80,000.

Insufficient controls were observed in this area and on the overall salary payments. Various other shortcomings as well as significant overpayments were revealed during the audit.

The budget allocation for financial year 2011, in respect of personal emoluments for Mater Dei Hospital, stood at €97,206,300.

€28,530,600 (29%) and €4,025,900 (4%) were allocated to allowances and overtime respectively, however, the actual expenditure incurred by the hospital on allowances and overtime was €28,891,986 and €4,368,745 respectively.

In one instance, two arrear payments totalling €31,943, were made to a Consultant, however, audit testing revealed that these arrear payments were erroneously made for both basic and extra sessions and resulted in an overpayment of €15,859.

NAO said that during 2011, the payroll office at Mater Dei was run by just 10 officers of various grade designations. The audit revealed that three officers were considered as the key persons within the Office, who must work considerable overtime hours in order to respect Treasury deadlines for processing of payrolls.

During 2011 alone, these key officers were in fact amongst the highest overtime earners amongst MDH employees. NAO noted that in the eventuality that any of the key officers are absent from work for a lengthy period, continuation of the payroll process would be put at risk or slowed down considerably.

The report also highlighted a number of instances of erroneous payments with some employees asked to pay back the money in installments, miscalculations of, or missing allowances, no records maintained for consultants' attendances and questionable hours of overtime worked by radiographers.

In a curious case highlighted by the report, three nurses received "a diving allowance" that is not cited in any of the public service reform agreements signed to date.

In addition the report said that urgency to acquire medicines and surgical materials, the government's

Health Procurement Services within the Ministry for Health, the Elderly and Community Care disregarded financial limits approved for direct orders.

The NAO pointed out that the excessive and expired stock of medicinal items that the Health Department is many times ending up with, is also a matter of concern.

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 Mater Dei Hospital.