‘Serious corporate governance issues’ uncovered at tourism zone foundation

“Serious corporate governance issues” and a total disregard for Public Procurement Regulations have been found at the Foundation for Tourism Zone Development, an audit of its operations in 2021 has found.

Over 2021, around 22 individuals had been given a “relatively short” contract for service with the Foundation at a total cost of over €206,000, the National Audit Office found.

Moreover, the work was awarded without any calls for expressions of interest, and the agreements were “repeatedly renewed” upon expiration.

Such agreements covered maintenance services, beach supervision as well as office and liaison office duties.

The Foundation for Tourism Zones Development is funded by the tourist tax introduced in 2016 and does maintenance and cleansing work in designated tourism zones.

In the assessment of its operations, internal controls were found to be severely lacking, “indicating that little or no monitoring was in place to ensure efficient financial management”.

2021’s €370,000 upgrading of the Xemxija promenade, a project that had been overrun by 12%, was singled out as a case in point.

An audit of the project found Public Procurement Regulations were ignored entirely.

For starters, every procurement sampled by the NAO, irrespective of the amount involved, was carried out by direct contract and without the approval of the right level of authority as required by standing regulations when purchasing from the open market.

At times, procurement of homogenous items was split into a number of batches “to intentionally circumvent the issue of a public call for tenders”.

While the service provider carrying out upgrading works at the Xemxija promenade was “hand-picked,” the NAO noted the provider was still expected to supply a quote for the costs of each phase of the project for the purchase order to be raised accordingly.

But in three out of nine instances assessed, related quotations were not traced, and it could not be ascertained on what basis the purchase orders – worth €22,519 excluding VAT – had been drawn up.

Moreover, the NAO found the chairman’s endorsement for the direct orders was given by initialising them “without disclosing the date” – rendering it impossible to determine whether authorisation had been given before the direct orders were placed.

The NAO found that over 2021, several posts, including those in headship positions, were vacant and the Foundation was “basically relying on employees seconded from other government entities and directorates, and the engagement of personnel through a contract for service”.

Although the Foundation was established in 2015, by mid-September 2022, the only annual audited accounts presented were those for the 2019 financial year – in breach of the Foundation’s statute, which stipulated audited accounts were to be submitted to the tourism minister each June.

As disclosed in the management accounts for the year 2021, the Foundation reported a total income of €1,378,368, including a €1 million annual allocation provided by the Central Government.

Meanwhile, total expenditure for 2021 totalled €2,051,881, resulting in a net deficit for the year of €673,513.