Fenech rejects Good Causes Fund mismanagement reports

Last week, MaltaToday revealed that a number of Good Causes Fund commitments made by the previous administration had raised serious doubts over the way the fund was managed, and as a result the new Labour government had asked the Auditor General to carry out a detailed investigation.

However, Tonio Fenech, who was responsible for the fund during the previous legislature, held that "official documentation in the ministry will clearly show that this was not the case, and rather the minster responsible for finance should get his act together, appoint the committee and start processing payments, rather than trying to find excuses for not having started to execute the payments for approved projects."

Yet, Fenech found no objection to the Auditor General's investigation, noting that a similar exercise was carried out during his time in office.

The Opposition MP added that the new finance minister, Edward Scicluna, "should have first tried to understand the difficulties faced by NGOs in raising funds and how the Good Causes Fund operates in support of these important initiatives, rather than jumping to the wrong conclusions."

Fenech stressed that he was "proud" of his legacy and the initiatives the Good Causes Fund supported during his time in office and expressed his hope that his successor would continue supporting such important initiatives.

The National Lotteries Good Causes Fund - which falls under the ministry of finance ¬- was set up to help out "individuals, agencies or organisations that have a social, cultural, educational, sport, philanthropic or religious activity."

The fund generates its income from a percentage of the amount of tax payable from gaming activity and unclaimed prizes.

"The Nationalist Party hopes that this so-called call for an investigation is not another diversion to hide the incompetence of this government that has neither set up the Committee nor initiated the process to receive further applications and process legitimate payments for commitments made," Fenech said.

Method of payment

Fenech explained that on recommendation of the Auditor General, the method of payment was changed, whereby upon approving a project the government only issued a commitment letter to the organization, and payments were only made after the project or initiative was undertaken and receipts presented.

Previously, payments were issued to the organisations before the projects were initiated and completed.

"This change in methodology therefore introduced the concept of commitments into the future, as clearly there was a time lag between the project approval and its execution," Fenech said. 

Without such a letter, Fenech added, organisations could not undertake the approved project as they could only acquire financing from banks against the presentation of the ministry's commitment.

"The fund had to commit future payments for projects to be started this year; however these were always within the limits of the quarterly cash flow expected in the future," Fenech said.

Flow of income

Sources informed MaltaToday that given the current rate of flow of income into the fund, it could take up to two years for all present commitments to be honoured by the new administration. The current balance of the fund is thought to be in the region of €180,000.

However, Fenech told MaltaToday that the Good Causes Fund income flow hovers around €80,000 to €100,000 per month (20% of gaming tax on national lotteries) and another €250,000 to €350,000 of unclaimed prizes from the June-December period.

"This means that the fund has approximately €1.5 million in annual income. To date the fund's account should have a balance of €260,000 and by the end of next week a further deposit of around €250,000 to €350,000 from unclaimed prizes," Fenech said.

Exceptions to the rule

In last week's report, MaltaToday revealed that the Labour government was concerned by a number of commitments taken by the PN administration, which apparently violated the fund's guidelines.

The guidelines, penned by Fenech himself, stipulate that in order to ensure that the available funding is shared by as many beneficiaries as possible, any proposed projects and initiatives can only be considered for financing if their "financing needs are 'one off' in nature and would not make any further claims on the funds to finance any recurrent commitments of whatever nature".

One of the striking commitments taken by former finance minister Fenech is an agreement reached in February 2012 for the fund to pay the Malta Football Association (MFA) almost €500,000 in quarterly instalments of around €50,000 each between 2012 and 2014.

Another agreement reached by the previous administration will see the Malta Aviation Society receive approximately €100,000 to sponsor the Malta International Airshow over a three-year period, starting from 2013.

The guidelines also state that the total contributions towards any one proposed project should not exceed €50,000, while "promoters would commit themselves to co-finance their project by a minimum of 33% of its total cost".

However, speaking to Malta Today, Fenech explained that the guidelines, which are not legally binding, also include a clause which allow the finance minister to make exceptions as long as these are justifiable and specific approval is obtained from the minister who himself set the limits on the Commission.

"It is not true that such agreements violate the fund's guidelines for the approval of projects and initiatives, since the guidelines themselves clearly refer such instances to the minister for his approval and I issued these approvals myself," Fenech said.

The guidelines state that the "parameters should be considered as broad guidelines that are not laid out in the relevant legislation and that, therefore, the minister responsible for finance, after having considered the merits and circumstances of any project submission, may consider waiving all or part the above-mentioned guidelines".

"If it is these sorts of violations that this government is concerned with, then clearly there is nothing so worrying as the Committee acted within the guidelines as set," Fenech added.

He said that applications for funding are received and adjudicated by a purposely established committee that makes recommendations to the minister every three months. The selection committee is made up of three civil servants representing three distinctive areas: sports, culture and civil society.

Before the introduction of the guidelines, the law did provide a framework and gave a complete freehand to the finance minister to allocate funds, without the need of an application process, a submission process, a committee and the procedures introduced and financial parameters.  

Fenech also explained that the exception granted to the Malta Football Association centered around a commitment of €500,000 which was part of a wider agreement reached between the association, the Malta Sports Council and the Good Causes Fund.

The agreement included the installation of synthetic turf pitches, new floodlighting systems, new fencing, and in some cases new or refurbished dressing rooms at 19 individual football clubs.

On the Malta Aviation Society commitment, Fenech explained that in recent years the airshow was heavily sponsored by various ministries and government entities, however, last year the government decided to consolidate its support to the event.

"Last year the organisers were on the verge of calling off the event due to the lack sponsorships and they could not confirm the participation of foreign participants, such as the Red Arrows. Therefore, the government decided rather than have the organisers knocking on every minister's door it would offer its support through the Good Causes Fund and it was only thanks to this that the event was held," Fenech said, underlining the event's importance in terms of tourism and the economy.

2012-2015 commitments

Sources told MaltaToday that the PN administration had committed to disburse over €3 million up to the end of 2015 and given the current rate of flow of income into the fund, it could take up to two years for all present commitments to be honoured by the new administration.

However, figures provided by Fenech show that the total present commitments is of around €2.2 million, with most projects set to be completed in 2013 and the first quarter of 2014.  

Fenech insisted that if these commitments were not approved, projects and initiatives could not commence.  

"If the ministry will not start processing the applications at hand there will be no projects in 2014 and 2015. This will imply that the NGOs, sports, cultural, educational and other organizations will suffer severe financing shortage due to this government's lack of foresight and appreciation of the importance of the Good Causes Fund in supporting numerous initiatives. It is a pity that this government is only interested in raising suspicion where there is no concern," Fenech said.

The figures provided by Fenech, however, show that between October 2012 and March 2013, the PN government committed itself to reimbursing €1.1 million. In the first three months of this year alone, the PN administration committed itself to €787,497, totalling more than the commitments for 2012.

In 2012 the following commitments remained unclaimed as either the Committee was not alerted that the project or initiative had been completed and/or receipts had not been presented by 8th March. It is not uncommon that some projects actually fail to materialize and the commitment letter is withdrawn as receipts are not presented or the project did not take place.

Fenech justified this by claiming that the selection committee observed the projected cash flows of each quarter.

"The amounts committed were well below the projected inflow levels, and there was no over commitment in every quarter. The only exception is Q1 2013, as these are projects and initiatives where the time-lag to claim was relatively short, within the first two quarters. In fact when the two quarters are taken together even here the allocations made are below the potential income."

Allocations in Fenech's districts

Earlier this week, the Labour Party claimed that before the election the fund was being used for "political and partisan" reasons. It also accused Fenech of having committed a large portion of the funds to organisations in the districts he contested in the general election.

Fenech vehemently denied this and provided MaltaToday with a table showing the breakdown of the allocated funds, district-by-district, for 2012.

The former minister contested the 8th and 12th electoral districts and was elected to both.

According to the figures, these districts received the fourth and fifth highest allocations from the 13 districts in 2012.

He pointed out that these were within the average allocation by district and augured that finance minister Edward Scicluna does not exclude the organisations in his districts from legitimately applying for funds because of him contesting their district. 

The table only shows the funds allocated in 2012, funds which would have been committed in the preceding months. Moreover, Fenech did not provide the list of commitments taken in the first three months of 2013, district-by-district.