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The Malta Labour Party consistently condemns tax evasion, but when it comes to managing its internal affairs it seems to have closed an eye. Damning evidence seen by MaltaToday shows that not all remuneration paid by the MLP to its employees is being declared for tax purposes.
A management letter presented to the Labour Party by its auditors last year states that “not all remuneration paid to full-timers and part-timers is being declared for tax purposes.”
The letter, prepared by reputed audit firm Ernst & Young, and seen by MaltaToday, was presented along side the audit of the Labour Party’s financial statements on 3 November last year for the financial year ended 30 June 2003. The letter was addressed to then secretary general Jimmy Magro.
Ernst & Young also painted a negative picture of the financial state of the Party and its subsidiaries, particularly One Productions Ltd, which owed more than Lm280,000 in social security contributions and Lm58,000 in VAT.
It also shed serious doubts on the accountability of the cash donation collection system under the responsibility of the Fund Collection Office (Ufficju Gbir ta’ Fondi).
As of June 2003 the MLP owed its creditors and the banks a total of Lm1.7 million, which represented an increase of just under Lm300,000 over the previous year.
The increase was in part due to the two electoral campaigns held last year.
A management letter presented by auditors Ernst & Young, to the Malta Labour Party for the financial year ended 30 June, indicated that not all is what meets the eye at the glass mansion at Hamrun.
The audit firm warned: “For the Party to repay its liabilities, it will need to generate additional revenue either by increasing its current levels of donations and activities (without increasing annual expenditure) or from sale of property.”
It also said that cash generation was an important factor because of the “severe liquidity problems” experienced at One Productions, the Labour Party’s broadcasting company. One Productions faces financial difficulties that could endanger the Party’s assets.
The MLP has hypothecated its headquarters in Hamrun to make good for banking facilities enjoyed by its subsidiary companies. The auditors’ management letter stated that as at 30 June 2003 bank guarantees by the Party using the headquarters as collateral amounted to more than half a million; Lm472,000 for One Productions and Lm50,000 for Sound Vision Print publishers of Kullhadd.
Ernst & Young urged the Party’s executive to thoroughly monitor and review both One Productions Ltd and Sound Vision Print Ltd’s operational and financial situation. They warned: “Any defaults by these Companies will significantly impact the Party’s operations.”
Missing receipts
Another worrisome issue pointed out by the auditors was the way donations were collected. In the year under review total donations received by the Party amounted to Lm497,059, mostly by cheques payable to the Party or premium telephone and SMS donations.
However, the auditors noted that when it came to cash donations, collected primarily through a number of voluntary cash collectors, controls were not adequate and the Party did nothing to address the problem despite it having been highlighted in previous management letters.
Among the weaknesses identified by the auditors was the lack of segregation of duties. They pointed out that the person in charge of the Fund Collection Office was responsible for the whole cash cycle. This would seem to imply that internal control was not adequate with few, if any, checks and balances to ensure all cash donations were actually making it to the MLP’s bank account.
The auditors added: “Due to frequent printing errors in the receipt books, we had recommended that someone checks the receipt books for any duplicate or missing receipts before utilisation. Cash collected is not being deposited intact on a daily basis.”
To compound matters further, the report claims that a number of collectors in possession of receipt books had not returned the books - and the funds - to the Party.
“Some have not even returned the first receipt book given to them in October 1999,” the auditors said.
Another weakness identified was the deficiency by the MLP to employ a financial controller to oversee the Party’s finances. “The job is in the hands of a part timer who does not have the time to properly control this area,” the auditors remarked.
Weak purchasing system
The purchasing system adopted by the Party also came for critical review by the auditors. Serious shortcomings were pointed out. “Not all invoices authorised for payment were supported by a purchase order,” the auditors concluded.
They pointed out that no petty cash voucher system existed and expenses were paid upon presentation of chits. Ernst & Young pinpointed one particular incidence when payment was made in respect of computer equipment against the presentation of a complimentary chit.
The auditors suggested the MLP keep a register of assets especially in respect of computer equipment, which could easily be ‘transported.’
One Productions
The management letter painted a negative picture of the operations at One Productions Ltd, which runs Super One TV and radio. One Productions made a net loss of Lm373,387 in 2002, which was more than double the loss made in 2001 (Lm107,772). The deterioration was primarily due to a drop in advertising revenue of almost Lm100,000.
Among the outstanding amounts owed by One Productions, the auditors listed more than Lm280,000 in social security contributions and more than Lm58,000 due to the VAT department.
Super One also owes more than half a million to trade creditors. According to the report the company had a bank overdraft of Lm251,745 and bank loans amounting to Lm286,462.
The auditors warned that “failure of One Productions to settle dues in respect of social security contributions and other taxes would mean that the directors might be personally liable for their settlement.”
No denial
When contacted by MaltaToday, former MLP secretary general Jimmy Magro would not comment, saying he no longer held a political post within the party.
A similar terse reply was forthcoming from MLP financial secretary, Tommy Dimech, who did not deny the serious statements made by the auditors. “Action is taken all the time,” Dimech told MaltaToday when asked whether the Labour Party had taken action on the management letter. Dimech would not answer more questions. When confronted with the claims of tax evasion and the doubts shed on the cash donation collection system, Dimech simply stuck to his reply and said: “Don’t push me for more.”
Dimech retained the post of financial secretary in the administrative elections held in November last year.
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