Continues from yesterday’s piece by Godfrey Leone Ganado who looks at the financial statements filed by the Labour and Nationalist parties under electoral law … and pokes his fingers in the many holes.
The comparative analysis is based on the accounts submitted to the Electoral Commission in accordance with the Financing of the Political Parties Act, and the guidelines issued by the Electoral Commission.
In order to present this analysis as simply as possible, I am presenting two articles, the first, published yesterday, focused on the Income and Expenditure Statements, and this second article focuses on the Statements of Financial Positions (Balance Sheets) which show the Assets (what the Parties own) and the Liabilities (what the Parties owe). The difference between these two, reflects the Net Worth of the Parties.
I do not intend to comment on every line item, but only on the most material ones. Also, the numbers are rounded up to the nearest thousand or percentage point, whichever is the case.
|STATEMENT OF FINANCIAL POSITION|
|AS AT 31 DECEMBER 2017|
|Land and buildings||15,492,360||8,890,492||13,852,264||8,925,063|
|Investments in controlled entities||0||12,344,887||11,963,761||0|
|Cash and cash equivalents||1,910,974||584,958||2,386,494||64,320|
|TOTAL EQUITY AND LIABILITIES||17,514,932||22,192,876||16,262,072||21,601,597|
- The Land and Buildings held by the PN are valued at Euro 15.4 million, whereas those held by the PL are valued at Euro 8.9 million. The PN owns various properties used as district clubs, besides the Dar Centrali. The PL seems to own just the Centru Nazzjonali, as its district clubs are either rented from third parties or are requisitioned premises. It is also unknown as to whether the land and buildings known as ‘Australia Hall’, are in anyway reflected in the accounts of one of its subsidiary companies.
- The PL owns a number of investments in entities it controls. These are MLP Holdings Limited, Consultancy & Research Limited, One Productions Limited, Sound Vision Print Limited, Sunrise Travel Limited, Orpheum Theatre Limited, Red Touch Fone Limited and Various clubs and branches. The value of each of these investments has been reduced to Euro 2 each, except for Orpheum Limited, which has retained the original value of its share capital of Euro 2,329, and the clubs and branches which have a value at 31 December 2017, of Euro 12.3 million which is not represented by immovable property. It is highly questionable as to why, except for the resulting annual surplus, the income and expenditure of the clubs are excluded from the financial statements of the Party. This may be done specifically to hide income from donations, and avoid legal accountability. The audited accounts of these controlled entities have not been sent to the MFSA for a number of years, ranging from 20 years to 4 years. It is therefore highly questionable as to why the PL retained these companies as active, rather than placing them into liquidation and striking them off the Companies Register.
- The PN owns two subsidiary companies, Media Link Communications Limited, which in turn has a fully owned subsidiary, Euro Tours Company Limited. The audited accounts of these subsidiary companies have not been sent to the MFSA. The last filing for Media Link Communications was on 30 August 2005 in respect of the accounts for the year ended 30 September 2004, and that for Euro Tours was on 5 July 2010, in respect of the accounts for the year ended 30 September 2005. The highlight of the PN’s financials is the Impairment of Euro 12.2 million together with the dilution of the original capital cost of Euro 7.7 million in respect of Media Link Communications. This means that the media arm of the PN has wiped out a funding of Euro 20 million up to 31 December 2017. This shows clearly that immediate radical action has to be taken, to rethink the economic feasibility and sustainability of its media, which may, in a few years’ time, lead to the economic extinction of the Party.
- The notes to the financial statements of the PL, disclose long-term receivables (loans) due from related parties amounting to Euro 1.5 million. These amounts have been fully provided for, that is, considered not to be recoverable. The actual beneficiaries are not disclosed.
- The PN had a cash liquidity of Euro 1.9 million as against Euro 600 thousand for the PL. The maintenance of a higher cash balance is important for the PN to have adequate free funds to pay the annual interest on the 10-year ‘cedoli’ scheme. The PL may have more liquid funds in the asset of Euro 12.2 million relating to its clubs, but this remains an unknown, unless the law extends accountability to subsidiary and related companies, including clubs.
- The accounts payable, that is creditors (amounts owed to third parties for operational activities) of the PL amounted to Euro 853 thousand and those of the PN to Euro 572 thousand.
- The PN has total borrowings of Euro 9 million, which represent a bank loan of Euro 2.9 million, a 5.6% loan from a related party (lender not disclosed) of Euro 2 million which is repayable in 2025, and the 4% 10-year Cedoli Scheme amounting to Euro 4.3 million.
- The PL has total borrowings of Euro 3.2 million, which represent bank overdraft and loans amounting to Euro 2.8 million, and borrowings from party clubs and the public amounting to Euro 424 thousand.
The Net Worth of the PN at 31 December 2017 was Euro 7.6 million whereas that of the PL was Euro 18 million.
The Financing of the Political Parties Act, needs to be amended to:
- incorporate the submission of the financial statements of the subsidiaries/related parties of the political parties;
- to have companies owned by Political Parties, classified as public interest entities, with a tighter deadline for the annual submission of audited accounts to the MFSA;
- to prohibit Party clubs from being considered as independent entities, and to therefore have their detailed accounts aggregated with the accounts of the Party.
- to incorporate the disclosure in the financial statements of the remuneration paid to specific Party Officials; and
- to incorporate a note in the financial statements, showing the movements during the year in the number of members (tesserati), that is, number at the beginning of the financial year, number of withdrawals, number of new members and the closing number at the end of the year.