Accounting and central control in Maltese local councils : complement or conflict?

Abstract

PURPOSE: The aim of this study is to examine whether the accounting basis which is currently being utilised by Local Councils is appropriate in ensuring control by Central Government, and eventually by Parliament. This question is prompted by an apparent overspending problem portrayed over the past few years in the annual reports issued by the National Audit Office. Additionally, an insight is given on how the Fiscal Responsibility Act (2014) has affected control of Local Councils by Central Government. DESIGN: The study made use of both quantitative and qualitative research methods. In order to have a holistic view, insights from both Local Councils and Central Government were obtained. A quantitative approach was utilised for Local Councils by the distribution of a questionnaire addressed to executive secretaries. A qualitative approach was chosen for high-ranking public officials through the use of semi-structured interviews. Interviewees included one participant from the Department for Local Government, two participants from the Ministry for Finance and two participants from the National Audit Office. FINDINGS: The accrual accounting basis complements with control exercised by Central Government to the extent that Parliament analyses the Local Councils’ situation on an accrual basis. A conflict may exist if Parliament does not scrutinise Local Councils on an accrual basis since, contrary to the cash-based system as practised by the other government departments, Local Councils’ reporting would not highlight any overspending to Parliament when this is approving funds for future years. The Fiscal Responsibility Act provides the required tools for Central Government to exercise better control over Local Councils to the extent that this is enforced. CONCLUSIONS: Similar to previous studies carried out in Malta, the findings of this study question the accountability requirement for public officials. The unfavourable financial situation of some Local Councils is attributed to the lack of enforcement from Central Government. This study further suggests that, prior to enforcement, there needs to be a clear structure in place defining what Local Councils should be held accountable for. In order for the Fiscal Responsibility Act to be really effective, there needs to be strong political commitment and the required resources for proper oversight. VALUE: This study may prove valuable to Central Government in Malta as an overview of what can be considered in analysing and improving the financial situation of Local Councils.