Purpose: The objective of this paper is to analyse the relationship between control by the Maltese Central Government on Local Government and the basis of budgetary and financial reporting used.

Design: Semi-structured interviews were carried out with the controller (Central Government officials and the National Audit Office), while a survey was carried out with the controlled (Maltese Local Councils).

Findings: The study analyses the role of reporting in agency and fiscal federalism theories. The financial reporting basis used by Maltese Local Councils may be undermining the control that Central Government seeks to exercise over Local Government spending and debt levels. The Local Councils’ financial statements report accrual deficits and increasing liabilities; but this overspending appears to slip through Parliamentary scrutiny because the latter approves cash allocations to Local Councils. The financial reports do not highlight overspending in cash terms. Furthermore, the Central Government should be consistent in its policy towards Local Government, which may require more elaborate reporting.

Value: This study highlights the importance of aligning the reporting required (top-down) and the reporting presented (bottom-up) – otherwise, control is at stake.