Saturday, 15 February 2014

AHPETC auditors' disclaimer of opinion on financial statements for Financial Year 2012

Ministry highlights issues after WP says its observations were misleading
By Andrea Ong, The Straits Times, 15 Feb 2014

THE controversy over the latest accounts of a Workers' Party-run town council was ramped up a notch last night with Ms Sylvia Lim releasing a lengthy defence of the council's position, which the Ministry of National Development (MND) promptly responded to.

Ms Lim described as incomplete and misleading the MND's observations on the latest financial statements of the town council under her charge.

Ms Lim, who chairs the Aljunied-Hougang-Punggol East Town Council (AHPETC), was responding to MND's statement on Thursday where it expressed concern that the council's independent auditors had submitted a disclaimer of opinion on its accounts for the second year running.



But in a response last night, MND noted that AHPETC's auditor raised 13 issues of concern. Of these, four were related to issues the auditor had raised the previous year. AHPETC had assured MND then that "most have been rectified, with a few still in progress", said the ministry. "The auditor's latest report however showed this not to be the case."

MND said the nine new issues include not complying with the rules for sinking fund transfers, not disclosing to its auditor the details of project management fees paid to a related party as well as its latest management accounts and minutes.

"Such failures are not related to handover issues," it said last night.

AHPETC had in its latest annual report attributed some of its financial issues to the handover in 2011 from the former Aljunied Town Council, which had been under the People's Action Party.

MND was responding to the WP's defence that some of the information gaps cited by the auditor were due to parties like the former managing agent.

Ms Lim also said AHPETC has fixed its oversight on transfer of monies to its sinking fund and expressed surprise that project management fees to a related party had to be reported separately.

In its report on AHPETC's financial statements for FY2012, auditor Foo Kon Tan Grant Thornton said it had been unable to obtain sufficient audit evidence and determine the accuracy and validity of several items in the accounts.

On Thursday, MND highlighted items such as lift upgrading expenses of $18.6 million and lift repair expenses of $1.6 million.



Yesterday, Ms Lim focused on a sum of $1.12 million which the former PAP-run Aljunied Town Council had recorded as receivable from the Citizens Consultative Committee (CCC) for town improvement projects.

The auditor's report said that AHPETC 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.

Ms Lim said AHPETC's repeated attempts to get information on the amount from the former managing agent and government bodies like MND and the Housing Board "did not yield answers".

Such gaps are likely to remain unless agencies give information to the town council, she said, adding that MND "could well be the best party" to assist AHPETC in resolving some key gaps.

Another area flagged by MND was the auditor's note that AHPETC had not transferred any conservancy and service charges to its sinking funds in the last financial year, as is required by the Town Councils Financial Rules.

Responding, Ms Lim said AHPETC acknowledged the council's practice of transferring money to its sinking fund after deducting sinking fund expenses was an oversight which has been rectified.

She stressed that the oversight had not resulted in any loss of monies or unauthorised spending.

MND also highlighted the auditor's observation that AHPETC had not made available details of project management service fees paid to a "related party", which is an entity where the town council's key management personnel have a personal financial interest.

Under "related party transactions", AHPETC had declared managing agent fees worth some $5.3 million paid to its agent FM Solutions and Services (FMSS), as well as project management services that FMSS had rendered "at an agreed percentage" based on the final value of the projects.

Ms Lim said it is standard practice for town councils to include project management as part of the services awarded to managing agents.

The financial statements do not specify that project management fees should be separately reported as these are listed as the project's construction costs or sinking fund expenditure.

AHPETC also submits quarterly returns to MND on new contracts awarded to its managing agent and was "puzzled" by why MND and the auditors highlighted the issue, she said.

She took issue with media reports that repeated "insinuations of impropriety" in AHPETC awarding its managing agent contract to FMSS.

The firm's managing director Danny Loh is secretary of AHPETC while his wife, Ms How Weng Fan, is its director and AHPETC general manager.

Ms Lim said FMSS had been appointed without tender for only a year, to tide over the handover period in 2011. The year after, it got a three-year contract after an open and audited tender.

Besides welcoming MND to perform any audit it deems necessary, Ms Lim also sought the ministry's help in resolving the issues raised by the auditor, by verifying and confirming some opening figures handed over by AHPETC's predecessor under the PAP.




SEEKING MINISTRY'S HELP

As MND has expressed its concerns over our accounts, we seek its assistance in resolving the issues raised by our auditor, by helping us verify and confirm the various opening figures handed over from the former Aljunied TC. We also welcome any audit by MND which it deems necessary.





FAILURES NOT DUE TO HANDOVER

The auditors raised 13 issues of concern... four of them are related to issues the auditor had raised the year before (FY 2011). Nine new issues of concern were raised, for instance, the TC did not transfer funds into its sinking funds as required. Such failures are not related to handover issues.







Workers’ Party links audit issues to post-poll handover; MND hits back
Most of the concerns auditors raised not related to handover issues, ministry says
By Neo Chai Chin, TODAY, 15 Feb 2014

The Aljunied-Hougang-Punggol East Town Council (AHPETC) yesterday sought to relate some concerns flagged by independent auditors over its latest financial statements to handover issues dating back to the 2011 General Election. This explanation was denied by the Ministry of National Development (MND) that pointed out that the majority of the concerns which the auditors made a disclaimer on “are not related to handover issues”.

The town council’s Chairman Sylvia Lim said yesterday in a media statement that it is seeking the ministry’s help to resolve gaps in its accounts, while criticising observations made by the latter on Thursday as “incomplete”.

The town council’s auditors, Foo Kon Tan Grant Thornton, were unable to determine if items worth over S$22 million in its latest financial statements were valid or accurate. This was among the issues highlighted by the MND in a press statement on Thursday, which also flagged as cause for concern the auditors’ disclaimer of opinion on the accounts.

Ms Lim said: “As MND has expressed its concerns over our accounts, we seek its assistance in resolving the issues raised by our auditor, by helping us verify and confirm the various opening figures handed over from the former Aljunied Town Council.”

Responding to Ms Lim’s statement last night, the MND did not indicate if it would assist the town council, but said the town council’s auditors raised 13 issues of concern in making a disclaimer, of which nine were “new issues of concern” raised in the 2012 financial year.

Four issues were from the previous financial year, and the Workers’ Party-run town council had assured MND last August that most had been rectified, with a few still in progress, the ministry said.

“The auditor’s latest report however showed this not to be the case,” it added.

The new issues of concern include the town council not transferring money into its sinking fund as mandated under the Town Councils Financial Rules.

“Such failures are not related to handover issues,” the MND said.

The ministry also took issue with Ms Lim saying the auditors had given a qualified report and not an adverse one. “The AHPETC auditor expressed a disclaimer of opinion on the Town Council’s FY2012 financial statement. This is more severe than a qualified opinion,” the MND said.

‘Lapses didn’t result in unauthorised spending’

Ms Lim had said the town council understands the auditors’ plight, as there were information gaps that existed at the handover after the 2011 General Election, that are still not filled.

For the 2011 financial year, the auditors had tried to seek information from the town council’s former auditors but failed.

“Repeated attempts” by the town council to get information from the former managing agent and government authorities did not yield answers, she said.

The MND and the Housing and Development Board were asked about S$1.12 million which the then-People’s Action Party-run Aljunied Town Council had recorded as receivables from the Citizens’ Consultative Committees for town improvement projects, for instance.

Attempts in the 2012 financial year were also unsuccessful, said Ms Lim, who is Member of Parliament for Aljunied GRC. “Unless those agencies with the required information furnish them to the Town Council, it is likely that information gaps will remain and the accounts will continue to be qualified every year,” she said. “In this regard, we note that the MND could well be the best party to assist the Town Council to resolve some of the key information gaps.”

Nevertheless, Ms Lim acknowledged lapses in the transfer of money to the town council sinking fund in the 2012 financial year. Town councils are required to transfer conservancy and service charges, grants-in-aid and interest payable to the sinking fund within one month from the end of each quarter of each financial year.

Ms Lim said the oversight did not result in any loss of money or unauthorised spending, and has been rectified.

She expressed puzzlement that the MND and auditors would take issue with how the town council did not provide details of project management service fees paid to its managing agent, FM Solutions and Services. It is standard practice for town councils to include project management fees in the managing agent services awarded, she said.

Media reports repeating “past insinuations of impropriety” in the town council awarding the managing agent contract to FM Solutions “must be debunked”, Ms Lim added. She reiterated that FM Solutions was appointed without tender for only one year right after the 2011 GE because of “urgent need” as the incumbent managing agent wanted to be released.

In 2012, an open tender was called but only FM Solutions submitted a bid, which was rigorously evaluated and subject to a special audit.

“Any allegation of impropriety is utterly rejected,” said Ms Lim, who welcomed any audit by the MND that it deems necessary.






Residents split over town council’s financial statements
By Kenneth Tan, TODAY, 15 Feb 2014

Residents in Aljunied GRC and Hougang whom this newspaper spoke to were split when asked yesterday whether they were concerned with the fact that auditors appointed by their Workers’ Party-run town council were unable to express an opinion on its latest financial statements.

A straw poll of 20 residents showed that half of them were worried, but the rest were indifferent.

On one hand, those who were concerned said that large sums of taxpayers’ money were involved, and the WP has to show that it is able to run the town council in a transparent manner.

On the other hand, those who were unperturbed said that it was premature to draw any conclusions and some felt the problems stemmed from the handover of Aljunied GRC by the People’s Action Party (PAP) following the General Election in 2011.

On Thursday, the independent auditors, Foo Kon Tan Grant Thornton, said that, among other things, they were unable to determine the validity and accuracy of various items, including receivables, lift repair and lift upgrading expenses, temporary unidentified receipts from residents and the Housing and Development Board, advance receipts from residents in respect of conservancy and service charges along with Goods and Services tax (GST) payables and unreconciled differences of cash and bank balances. In total, the items were worth more than S$22 million.

The annual report for Aljunied-Hougang-Punggol East Town Council — containing the financial statements — does not include Punggol East, which came under the town council following the WP’s victory in the constituency’s by-election in January last year.

Ms Sharon Tan, a homemaker, said: “It concerns my neighbourhood and their decision-making.” She added that the news was enough to make residents reconsider which political party they want to run their town council.

Ms Kim Lin Harbick, 34, added: “It’s our money (which) they are spending. The town councils have a duty to the residents to be transparent in their doings.”

Mr Joseph Moolayil Joseph, a 85-year-old retiree, felt that as a responsible organisation, the town council must be able to fully account for their spending to the auditors.

The town council’s auditors had submitted a disclaimer of opinion for the second time — prompting the Ministry of National Development to flag its concern in a press release issued on Thursday.

Disclaimers of opinion are issued by auditors when there is a lack of information or appropriate evidence to provide a basis for audit opinion.

However, Ms Suriati Mohamed, a 50-year-old housewife, said it was not a concern for her as long as her needs as a resident are met by the town council. “I don’t know about financials, as long as there is no problem, all the facilities are here, it is okay for me,” she said.

Similarly, other residents such as Ms Diana Tan, 42, said they were unconcerned about what they described as “politics”.

Mr Tan Yoke Len, 44, a HDB shopowner, said he felt that there were some issues with the handover by the PAP.

Mr Assya Fiee, a 28-year-old technical officer, said he is waiting to see how the issue plays out. In the meantime, he is putting his trust in the WP, he said.





Auditors unable to verify WP town council's accounts
By Charissa Yong, The Straits Times, 14 Feb 2014

INDEPENDENT auditors have declared that they are unable to verify a Workers' Party-run town council's accounts for the second year running.

The auditors hired by the Aljunied-Hougang-Punggol East Town Council (AHPETC) highlighted 13 points of concern. Foo Kon Tan Grant Thornton said in its report that it was "not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion".

These included the fact that AHPETC did not release details of project management service fees paid to a "related party".

These are transactions where the town council's key management staff have a personal financial interest.

Auditors said that as the information they sought was not disclosed to them, they were "unable to determine the completeness of the related party disclosures as disclosed in... the financial statements".

Auditors also could not determine the validity and accuracy of various items in the accounts, including some $20 million in lift repair and lift upgrading expenses. There were also unexplained differences, between its records and returns submitted, of GST payable, involving some $518,000.

The town council also did not transfer any service and conservancy charges to a sinking fund account for estate maintenance, in the 12 months ending March 31 last year.

The auditors' report prompted the Ministry of National Development (MND) to express concern. The ministry said yesterday that AHPETC had not complied with some provisions of the Town Councils Act and the Town Councils Financial Rules, as reported by the independent auditor.

"This is the second year that AHPETC's auditors have submitted a disclaimer of opinion on its accounts. This is cause for concern," MND said.

Accountants say there are four types of audit opinions here. A disclaimer is the second-worst, the worst is adverse.

AHPETC said that preparing the financial statements "continued to be a challenge" due to "handover issues that required more time to resolve".

Town councils are required by law to submit audited financial statements to the Minister for National Development, for presentation to Parliament. The deadline for the 2012/2013 financial year was Aug 31 last year. AHPETC was late, and did so only on Monday after seven reminders.





'13 problem areas' in town council accounts
Auditors highlight issues involving unverifiable funds, lack of documents
By Charissa Yong And Andrea Ong, The Straits Times, 14 Feb 2014

AUDITORS appointed by the Aljunied-Hougang-Punggol East Town Council (AHPETC) sought information they needed to sign off on its accounts, but said that they had not been given enough data to do so in 13 areas which they flagged.

The Workers' Party-run town council's financial statements for FY2011/2012 could also not be verified by auditors.

In the latest report, auditor Foo Kon Tan Grant Thornton also drew attention to the fact that AHPETC did not release 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 awarded for the projects.

Auditors were, therefore, "unable to determine the completeness of the related party disclosures as disclosed in... the financial statements".

The third party, sources said, is AHPETC's managing agent, FM Solutions and Services (FMSS).

AHPETC's annual report said it hired FMSS for three years beginning in July 2012.

The firm, the report added, provided project management services which worked out to some $5.3 million in FY2012/2013, based on an agreed formula.

The company, which first came to public attention during a parliamentary debate on town councils last May, is closely affiliated with the WP. Its managing director, Mr Danny Loh, is also secretary of AHPETC. His wife, Ms How Weng Fan, is the firm's director and acted as the town council's general manager.

The couple had been assentor and proposer to the WP candidates who contested Ang Mo Kio GRC in the 2006 General Election, the coordinating chairman of the People's Action Party town councils, Dr Teo Ho Pin, had revealed in May last year.

Auditors also said that the validity and accuracy of various items in AHPETC's accounts, including lift repair and lift upgrading expenses of some $20 million, could also not be determined.

The auditor noted that lift repair and upgrading expenses from the previous financial year had been included in the current year's financial statement. This resulted in expenditures for the current year being overstated.

In the annual report, AHPETC acknowledged some of the issues, and pointed out that these were carried over from previous years.

For example, $110,735 that was due from the Inland Revenue Authority of Singapore was in the accounts handed over from the previous managing agent but without supporting documents. The lack of documents meant that their accuracy could not be verified, she said.

There were also funds received by the Citizens' Consultative Committee which could not be verified. Though AHPETC received $520,926 from the CCC in the current financial year, these receipts could not be identified and matched to the receivables.

Another $338,379 pertaining to "accrual without work orders" was also brought forward from Aljunied Town Council in August 2011, when the WP took over the running of the organisation from the People's Action Party. The town council said this amount was brought forward "without details", and therefore could also not be verified.

"In addition to these handover legacy issues, there were systemic and structural issues associated with developing a new financial system," it added.

This is being implemented in phases, resulting in "many accounting adjustments" along the way. Some of these will be carried forward to the next financial year, the report said.

Some of the other areas flagged by auditors - GST differences, income tax provisions and payments and conservancy charges received in advance - are "major accounts which require more time and effort to reconcile", it said.

Town councils are also required by law to transfer a portion of the monthly conservancy and service charges to a sinking fund to maintain the estate it has charge of.

This must be done within a month from the end of the quarter of each financial year, but the AHPETC breached this rule for the entire financial year ended March 31, 2012.

The WP's seven MPs and town councillors, including chairman Sylvia Lim, held their regular quarterly meeting at AHPETC's Hougang Central office last night.

AHPETC vice-chairman Pritam Singh said they would respond to the Ministry of National Development's statement accordingly.




Some discrepancies
- Aljunied-Hougang-Punggol East Town Council (AHPETC) did not transfer a portion of monthly service and conservancy charges into its sinking funds as required under the Town Councils Financial Rules, for the financial year ended March 31, 2013.
All town councils must do so within a month from the end of each quarter of each financial year.
- AHPETC did not give auditors details of project management service fees paid to a related party.
Related party transactions are those where the town council's key management personnel have a personal financial interest.
- AHPETC did not make available to auditors its latest management accounts and records of minutes subsequent to the financial year-end, to allow auditors to ascertain whether the statements properly reflected adjustments or disclosures needed in light of relevant subsequent events.
- Various items' validity and accuracy could not be determined.
This included some $20 million in lift repair and lift upgrading expenses, about $308,000 of temporary unidentified receipts from residents and HDB, some $507,000 in advance receipts from residents in respect of conservancy and service charges, and receivables of some $1.8 million recorded in "sundry debtors".

There were also unexplained differences of some $518,000 in goods and services tax payable, and unreconciled differences of some $63,000 in cash and bank balances.



Related
Opining on the disclaimer of opinion
Town council should take responsibility for problems caused
Auditor-General to study WP town council's accounts
AHPETC does badly in S&CC arrears, corporate governance in Town Council report 2013/2014

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Debate on motion on the AGO report on the audit of AHPETC -12/13 Feb 2015
Debate on AGO's audit report on AHPETC, Day 1



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