By Leonard Lim, The Straits Times, 20 Feb 2014
FINANCE Minister Tharman Shanmugaratnam has directed the Auditor-General to audit the accounts of the town council run by the Workers' Party (WP).
The directive comes after the town council's auditors identified 13 items to be issues of concern, which led them to give a disclaimer of opinion on its FY2012/13 financial statements.
Mr Tharman, who is also Deputy Prime Minister, exercised his powers under the Audit Act, at the request of National Development Minister Khaw Boon Wan.
"As stewards of public funds, all town councils must keep proper accounts and records, and ensure adequate control over their assets," said a joint statement from the National Development and Finance ministries yesterday.
In his letter to the Auditor-General, Mr Tharman said that the report's observations raise serious questions about the reliability and accuracy of the town council's financial and accounting systems, and about whether public funds in the town council are properly applied.
The terms of reference for the audit allow the Auditor-General to, among other things, examine whether the Aljunied-Hougang-Punggol East Town Council (AHPETC) has taken "all reasonable steps" to safeguard the collection and custody of the town council's monies.
* Auditor-General's Audit of Workers' Party-run town council flags major lapses
Among the problematic areas was AHPETC's failure to give details of project management service fees paid to a related party. This is where a key management personnel of the town council has a personal financial interest in the contracts given for projects.
Corporate governance experts said the disclaimer indicates a lack of proper records and procedures, resulting in the auditors being unable to give an opinion on the veracity of the statements.
This was the second year that auditors had not given AHPETC's accounts a clean bill of health.
The joint statement noted that "the auditor has raised several more issues of pressing concern this year, compared to last year".
WP secretary-general Low Thia Khiang told reporters he was certain no money was lost, and there were no illegal or unauthorised payments. Ms Sylvia Lim, chairman of the town council and WP, assured the Auditor-General's Office of their "full cooperation in this matter".
Auditor-General directed to scrutinise WP-run town council’s accounts
By Sumita Sredharan, TODAY, 20 Feb 2014
By Sumita Sredharan, TODAY, 20 Feb 2014
Last week, independent auditors said they were unable to express an opinion on the latest financial statements of the Workers’ Party-run town council, after they could not determine if items worth more than S$22 million were valid or accurate. This led to the Ministry of National Development (MND) flagging cause for concern as it was the second successive year in which AHPETC’s auditors, Foo Kon Tan Grant Thornton, had submitted a disclaimer of opinion on the town council’s accounts.
A joint press statement by the MND and the Ministry of Finance said National Development Minister Khaw Boon Wan had requested Mr Tharman to exercise his powers under the Audit Act.
In a letter addressed to Mr Tharman, which was made available to the media, Mr Khaw noted that AHPETC had responded to the auditors’ report to say that the issues arose primarily from the time of the town council’s handover in 2011. But he pointed out that the explanation did not address several of the auditors’ concerns, such as the fact that AHPETC did not comply with the law to transfer S$12.46 million in conservancy and service charges into the bank account of its sinking funds.
For the whole of FY2012-13, AHPETC did not transfer any amount of conservancy and service charges to its sinking funds, Mr Khaw added.
“The Auditor has raised several more issues of pressing concern this year, compared with the previous year. This suggests a deterioration in the position,” Mr Khaw wrote in the letter, which was dated Tuesday.
Mr Tharman said he shared Mr Khaw’s concerns in his letter to the Auditor-General, directing the latter to carry out the audit.
The joint-statement from the ministries noted that AHPETC’s auditors had raised 13 issues of concern. The auditors also issued a qualified opinion on the town council’s other legal and regulatory requirements, stating that it had not complied with the provisions of the Town Councils Act and Financial Rules in various respects.
Under the terms of reference, the Auditor-General will ascertain, among other things, whether the town council took all reasonable steps to safeguard the collection and custody of its funds, as well as ensure that issues and payments were made in accordance with proper authority and payments were properly chargeable and supported by sufficient vouchers or proof of payment.
In a press statement, AHPETC Chairman Sylvia Lim said the town council welcomes the government’s decision to have its accounts for FY2012 audited by the Auditor-General’s Office. “We assure the Auditor-General’s Office of our full co-operation in this matter,” she said.
Mr Low said he understood that “certain figures were related to handover issues” but there was no point arguing over “very technical things”. “What I do know is that there is no money lost from the town council, no illegal or unauthorised payments. From the layman’s perspective, I am satisfied with what happened,” he said. “Technically, to comply with some audit requirements, I think (it) is a different ball game altogether.”
He reiterated: “As far as I am concerned, we know what we are doing. We don’t think we have done anything wrong or illegally.”
In response to media queries, the MND explained that it did not act when the town council’s auditors first submitted a disclaimer of opinion in 2011 as it decided to give the town council time to resolve the issues.
Last week, in response to the auditors’ report, Ms Lim said that in 2011 and 2012, AHPETC’s repeated attempts to obtain information from the former managing agent and government authorities — such as queries to the MND and the Housing and Development Board (HDB) about a sum of S$1.12 million that was recorded by the People’s Action Party-run Aljunied Town Council as receivables from the Citizens’ Consultative Committees (CCCs) for town improvement projects — did not yield answers.
The MND yesterday said AHPETC sought assistance twice in 2012 — on Nov 2 and Dec 20 — on the payment status of some outstanding items in their records. “This included the receivables from the CCCs for town improvement projects, as well as from the HDB. In both instances, the MND and the HDB provided the information available, on Nov 27, 2012 and Dec 21, 2012, respectively,” it said.
In turn, AHPETC was asked to provide further details and/or copies of invoices to enable the authorities to help check on the payment status. However, the town council did not respond to this, the MND said.
The ministry added that the MND and the HDB had paid the town council about S$2.9 million for projects funded by the Community Improvement Projects Committee (CIPC) — S$2.4 million in FY2011 and S$520,000 in FY2012. “As at end FY2012, there was no more outstanding amount due to AHPETC from the CIPC. Hence, we are puzzled by an outstanding receivable of S$1.12 million reflected in the town council’s FY2012 financial statements,” the MND said.
Auditor 'raised serious questions'
More issues flagged in AHPETC's accounts than in year before: Khaw
By Andrea Ong And Maryam Mokhtar, The Straits Times, 20 Feb 2014
More issues flagged in AHPETC's accounts than in year before: Khaw
By Andrea Ong And Maryam Mokhtar, The Straits Times, 20 Feb 2014
THE independent auditor for the Aljunied-Hougang-Punggol East Town Council (AHPETC) raised several more issues of pressing concern this year compared with the previous year.
This suggested a deterioration in position, National Development Minister Khaw Boon Wan said in a letter to the Finance Minister, in setting out why the Auditor-General should move in to audit the AHPETC's accounts.
The auditor's report raised "serious questions" about the reliability and accuracy of the town council's financial and accounting systems, Mr Khaw said.
Finance Minister Tharman Shanmugaratnam said in a letter to the Auditor-General that he shared Mr Khaw's concerns, and also asked that the findings be submitted to both ministers.
In the FY2012/13 financial statements submitted to the Ministry of National Development (MND) on Feb 10, the auditor flagged 13 areas of concern that led it to submit a "disclaimer of opinion". This was nine more than the previous year.
Last Thursday, Mr Khaw's ministry expressed concern that this was the second year that the auditor had reached such a conclusion on the Workers' Party-run town council's accounts.
Corporate governance experts said the disclaimer meant that auditors were unable to form an opinion on the veracity of the financial records. There are four types of audit opinions - a disclaimer is the second-worst, with the worst being adverse.
Last Friday, AHPETC chairman Sylvia Lim attributed some of the issues to the handover in 2011 from the former council under the People's Action Party.
But Mr Khaw, whose ministry oversees town councils, said in his letter: "Several serious issues which the auditor has raised relate to AHPETC's actions in 2012 and 2013, well after the handover in 2011."
He listed four areas highlighted by the auditors which Ms Lim's explanation had not dealt with.
First, the town council did not fully disclose to its auditor the full details of fees paid to a related party - an entity in which the town council's key management personnel have a personal financial interest. All town councils are required to disclose these details, he said.
In its accounts, AHPETC had declared under a "related party transactions" section that it paid managing agent fees of some $5.3 million to its agent FM Solutions and Services (FMSS).
It also declared project management services FMSS had rendered "at an agreed percentage" based on the final value of the projects, without stating an amount.
Last Friday, Ms Lim said it was standard practice for town councils to include project management as part of the services awarded to managing agents. It is not specified that project management fees should be separately reported, she added.
The second area, said Mr Khaw, was that AHPETC had not complied with the legal requirement to transfer $12.46 million in service and conservancy charges into its sinking funds for the whole of FY2012/13. Ms Lim said this was an "oversight" which has since been rectified.
However, Mr Khaw said AHPETC had not released to the auditor its latest management accounts and records of minutes after the end of the last financial year. Hence, the auditor had not been able to ascertain whether the statements reflected the necessary adjustments and disclosures.
Finally, Mr Khaw noted that the auditor had identified various other matters for giving a disclaimer of opinion. He said the auditor could not determine the validity and accuracy, or could not explain the differences, for amounts exceeding $20 million.
Yesterday, Ms Lim said AHPETC would respond to Mr Khaw at an appropriate time. WP secretary-general Low Thia Khiang said he welcomed the decision to involve the Auditor-General.
What has happened so far
MONDAY, FEB 10:
- Aljunied-Hougang-Punggol East Town Council (AHPETC) submits its audited FY2012/13 accounts to the Minister for National Development, six months after the Aug 31 deadline of last year and after seven reminders.
- Independent auditors have issued a disclaimer of opinion, as they were unable to get information needed to sign off on 13 areas. This means the auditors could not fully verify the accounts. One area highlighted is AHPETC's failure to release details of project management service fees paid to a related party.THURSDAY, FEB 13:
- The Ministry of National Development (MND) expresses concern that this is the second year that AHPETC's auditors have submitted a disclaimer of opinion on its accounts.
FRIDAY, FEB 14:
- AHPETC chairman Sylvia Lim describes the MND's statement as incomplete and misleading.
- She says information gaps from when the Workers' Party took over the town council from the People's Action Party in 2011 still remain unfilled after repeated failed attempts to get data from the former managing agent and authorities like MND.
- MND issues a second statement to say the auditors raised 13 issues of concern, four of which they had raised a year earlier and which AHPETC had promised to fix but had not. MND says the other nine areas, including AHPETC's failure to transfer monies to the sinking fund as required, have nothing to do with handover issues.
Ministry refutes AHPETC's claim
By Andrea Ong, The Straits Times, 20 Feb 2014
By Andrea Ong, The Straits Times, 20 Feb 2014
THE Ministry of National Development (MND) yesterday refuted the Aljunied-Hougang-Punggol East Town Council's (AHPETC's) claim that it was unable to get data from government bodies for a particular item in its accounts.
At issue is a sum of $1.12 million, which the former Aljunied Town Council run by the People's Action Party had recorded as receivable from the Citizens' Consultative Committees (CCCs) for town improvement projects.
AHPETC's auditor said the town council had received about $521,000 from the CCC in the last financial year, but this could not be identified and matched to the $1.12 million receivable. AHPETC chairman Sylvia Lim referred to this last Friday as an example of an "information gap" arising from the handover of the town council to the Workers' Party in 2011.
But in response to queries, MND said AHPETC had twice in 2012 sought assistance for data on outstanding items in their records, including the amount receivable from the CCC. MND and HDB had provided the data available within 25 days in one case and a day in the other.
"In turn, MND/HDB asked the town council to provide further details and/or copy of invoices, to enable MND/HDB to help check on the payment status. However, (they) did not respond to this."
Yesterday, MND also disputed the $1.12 million figure. MND and HDB had paid AHPETC some $2.9 million for projects under the Community Improvement Projects Committee (CIPC) in the 2011 and 2012 financial years, it said. "As at end-FY12, there was no more outstanding amount due to AHPETC from the CIPC. Hence, we are puzzled by an outstanding receivable of $1.12m... in the FY12 financial statements."
Auditor-General stepping in shows 'serious concern'
Experts say Government's move over town council accounts 'sends signal'
By Charissa Yong, The Straits Times, 21 Feb 2014
Experts say Government's move over town council accounts 'sends signal'
By Charissa Yong, The Straits Times, 21 Feb 2014
Also, the accounts of the Aljunied-Hougang-Punggol East Town Council (AHPETC) failed to receive a clean bill of health from its auditors for two years in a row.
Corporate governance and audit experts interviewed also endorsed the Auditor-General's Office (AGO) as the best choice to do the audit, citing its reputation as an independent body.
The AGO told The Straits Times it has never been directed to audit a town council. Said its spokesman yesterday: "This is the first time the Auditor-General's Office has been directed to carry out an audit of this nature.
"The AGO would be gathering more information to plan the scope of the audit," she added.
Accounting don Mak Yuen Teen, of the National University of Singapore, said the AGO stepping in "sends a signal that this situation is unusual and of serious concern to the Government".
Agreeing, Associate Professor El'fred Boo, of Nanyang Technological University (NTU), added: "Strong governance, accountability and transparency are crucial as public funds are involved."
On Wednesday, the Auditor-General was directed to audit AHPETC's accounts after the town council's independent auditor identified 13 items in its statements to be issues of concern.
AHPETC chairman Sylvia Lim said the town council welcomed the Government's decision to have its 2012 accounts audited and assured the AGO of its full cooperation.
The Government's move in sending a "very independent" party like the Auditor-General shows it wants to clear up any perception of wrongdoing, said Singapore Management University associate professor Themin Suwardy.
The AGO is constitutionally independent of the Government, as the Auditor-General is appointed under the Constitution to audit the Government, its agencies and other organisations like statutory boards.
Every year, ministries are audited and the results reported to Parliament. But statutory boards are audited rotationally, covering a selected number each year. The composition changes every year, and the rest are audited by appointed commercial accounting firms.
NUS accounting department head Ho Yew Kee noted that the AGO has the reputation of "doing a good job and bowing to no political pressure".
"Whether it's a minister or permanent secretary, if they get rapped, they get rapped," he said, pointing to the AGO's annual audit of the public sector. For the financial year 2011/2012, the AGO found procurement slip-ups and poor oversight in 10 ministries and 11 statutory boards.
Given its independent status, NUS professor Teo Chee Khiang, a former deputy auditor-general, said it is "best placed to do a fair and objective investigation into any financial controversy".
In the best case scenario, the AGO's involvement will bring closure to this episode by confirming or dispelling earlier allegations, said Prof Boo. The reason is that with the powers granted by law, the AGO can gain access to information and ask for explanations.
"We would normally expect the AHPETC to cooperate, unless such information or documents are truly not available," he added.
The audit can also identify any potential weaknesses to be corrected, said NTU's accounting head Terence Ng. This can ensure proper accountability "by all parties concerned" in the future.
But unless there is evidence of criminal wrongdoing, not much can be done but to ask the town council to shape up, said Dr Mak.
"It's not like the Government can sack the town council members, as they are elected MPs. Ultimately, the MPs responsible for the town councils are accountable to the constituents and the people who elected them," he said.
Going forward, Dr Mak argued that town councils should be subject to regular compliance and performance audits, similar to those carried out at other public sector organisations. Such audits would suss out poor governance, lack of compliance with rules, conflicts of interest, procurement irregularities and wastage, he said.
"The Government should consider ensuring the AGO has sufficient resources to do proper audits of all town councils on a rotational basis."
What the types of audit opinion mean
By Charissa Yong, The Straits Times, 21 Feb 2014
By Charissa Yong, The Straits Times, 21 Feb 2014
AUDITORS can give four types of opinion to signal if financial statements are true or false.
The first, an "unqualified opinion", means that auditors have no issue with the financial statements and can say that they are true and fair.
An "adverse opinion" lies at the other end of the spectrum.
It is the most serious opinion that auditors give to indicate that the misstatements in the financial report are severe.
A "qualified opinion" lies in-between. It occurs when information that supports the financial report is missing or withheld. In this scenario, the auditor can neither verify nor disprove the financial report.
There are two general levels of qualified opinion. For a low-level qualified opinion, the missing information is significant but not pervasive.
This usually means that auditors do not have access to one or two items, but find the rest of the financial statements acceptable.
But the more serious qualified opinion is a "disclaimer of opinion". That is what independent auditors gave the Aljunied-Hougang- Punggol East Town Council for the 2011/2012 and 2012/2013 financial years.
A disclaimer indicates that there was a lack of proper records and procedures in place.
Consequently, the auditor is unable to obtain the necessary evidence to certify the financial statements as either accurate or inaccurate.
Experts say that this waves a red flag, but it does not necessarily mean that the numbers are wrong.
Rather, it says that something could be wrong with the accounts, whether due to wrongdoing, slipshod book-keeping or lost documents.
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