Tuesday, 10 February 2015

AGO Audit of Workers' Party-run town council FY2012-13 accounts flags major lapses

Potential conflicts of interest not managed properly: Auditor-General
By Rachel Chang, Assistant Political Editor, The Straits Times, 10 Feb 2015

THE Auditor-General has found "major lapses" in governance and compliance with the law in its audit of the Aljunied-Hougang-Punggol East Town Council (AHPETC) run by the Workers' Party (WP).

In a 59-page report issued last Friday and made public yesterday, the Auditor-General's Office (AGO) identified five broad areas of "weakness":
- Lapses in management of sinking funds;
- Lapses in governance of related party transactions leading to conflicts of interest;
- Lapses in management of arrears of service and conservancy charges;
- Lapses in internal controls and procurement; and
- Inadequacies in record management and accounting system.
Dominating the report was the second section, where the AGO said AHPETC inadequately managed potential conflicts of interest in its transactions. AHPETC senior staff, such as its secretary and general manager, also own companies that the town council had contracted to provide estate management services.


While double-hatting of roles is not uncommon among town councils, including those run by the People's Action Party, ownership of companies that provide managing agent services is not prevalent. In the case of AHPETC, the AGO said it found inadequate disclosure and oversight of such conflicts of interests.

For example, it identified 84 instances in which one of AHPETC's staff involved in reviewing work and approving payment also had ownership interest in the company that was receiving the payment. These transactions, in 2012 and 2013, amounted to $6.61 million.

The AGO also flagged the town council's failure to transfer monies to its sinking fund several times, as required under the law. It did not transfer a total of $7.9 million to its sinking fund for the last three quarters of the financial year 2011/12, until it was queried by the AGO. The following year, it failed to transfer funds amounting to about $4 million to its sinking fund on time or in full.

Town councils are required by law to have a sinking fund they can draw on for the improvement and long-term maintenance of properties they have charge of.

The AGO report concluded: "Unless the weaknesses are addressed, there can be no assurances that AHPETC's financial statements are accurate and reliable, and that public funds are properly spent, accounted for and managed."

In response, AHPETC, headed by WP chairman Sylvia Lim, said: "What is clear from the AGO findings is that no money has been found to be missing, nor has there been any criminal or dishonest activity uncovered.

"Instead, the observations show mistakes and omissions due to inadvertence, human error, IT system constraints and a lack of experience in dealing with certain scenarios."

The AGO replied that this "broad conclusion cannot be derived from AGO's audit".



The AHPETC said that, while it would benefit from the AGO's findings, it had been "very challenging" juggling the resource-intensive audit with day-to-day running of the town council.

Experts interviewed yesterday said uncovering fraud or criminal wrongdoing is beyond the remit of the AGO. Identifying instances where a conflict of interest is present does not amount to uncovering wrongdoing, they added.

The audit report will be debated in Parliament on Thursday. Last night, Ms Lim said AHPETC would give its full response to the audit report in Parliament.

The top-level scrutiny of AHPETC, the largest town council ever run by an opposition party, was requested last February by Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam. It came after two consecutive years of AHPETC's own auditors saying they could not give its accounts a clean bill of health.





Major lapses in governance, compliance found at AHPETC
By Kelly Ng, TODAY, 10 Feb 2015

Following a year-long audit, the Auditor-General’s Office (AGO) has found several lapses in governance and compliance with the law by the Aljunied-Hougang-Punggol East Town Council (AHPETC).

The AGO report was submitted to the Government on Friday and made public yesterday. The 17-page report, which came with several annexes and appendices, will be discussed in Parliament on Thursday, after National Development Minister Khaw Boon Wan tabled a motion on it.

The town council’s major lapses included a failure to transfer monies into the sinking-fund bank accounts as required by the Town Councils Financial Rules, inadequate oversight of related party transactions, not having a system to monitor arrears of service and conservancy charges (S&CC) accurately, poor internal controls, and no suitable system to safeguard documents and keep proper accounts and records as required by the Town Councils Act.

While the town council has maintained that it did not do anything wrong or illegal, the AGO said: “Until the weaknesses are addressed, there can be no assurance that AHPETC’s accounts are accurate and reliable, or that public funds are properly spent, accounted for and managed.”

In February last year, Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam directed the Auditor-General to conduct an audit of the town council’s 2012 accounts, after independent auditors said they were unable to express an opinion on its latest financial statements. This led to the Ministry of National Development (MND) flagging cause for concern as it was the second successive year in which the town council’s auditors, Foo Kon Tan Grant Thornton, had submitted a disclaimer of opinion on its accounts — with the auditors raising several more issues of pressing concern in the second year, compared to the first year.



Among other findings, the AGO report said that conflicts of interest arose when key officers in AHPETC also owned or were linked to companies hired by the town council for estate management work. It cited 84 invoices amounting to S$6.61 million, involving an AHPETC key officer who reviewed the work and approved payment, and also had shareholdings in the company that received the money. It cannot be ascertained if these payments had been adequately verified due to a lack of necessary checks and balances, the report said.

The report also highlighted several instances where AHPETC failed to make necessary transfers to its sinking funds, which are used for improvement and long-term maintenance of properties. For instance, no transfer was made for the last three quarters of financial year 2011/2012. Even when S$7.44 million was put in in June last year following AGO’s queries, there was still a shortfall of S$469,000.

The report is the latest development of long-running saga that began in 2012, when the authorities first raised a red flag on the management of S&CC arrears by the Aljunied-Hougang Town Council, which subsequently merged with the Punggol East Town Council to become AHPETC following the Worker’s Party’s (WP) victory in the 2013 Punggol East by-election.

After town council chairman Sylvia Lim blamed its poor performance on the need to develop new IT systems after the People’s Action Party (PAP)-owned Action Information Management (AIM) terminated its contract, a review was conducted of the transaction which saw the 14 PAP town councils selling management software to AIM via an open tender in 2010.

In May 2013, the review by the Ministry of National Development gave the AIM transaction the all-clear but it recommended that the Government conducts a “strategic review” on the roles and functions of town councils, in view of their politicised nature. It led to a review of the town council framework which is still ongoing.

Since 2012, WP’s management of its town council has come under scrutiny regularly, especially after its poor performances in the annual town council management report.

During the saga, sharp words were exchanged in Parliament as well via the media, with Ms Lim at one point challenging Mr Khaw and Coordinating Chairman of PAP Town Councils Teo Ho Pin to report the matter to the Corrupt Practices Investigation Bureau if they believe something was amiss.

Most recently, Minister of State (National Development) Desmond Lee and Ms Lim were involved in a war of words, with Mr Lee saying that the excuses the WP has been doling out has cast doubt not only on the competence of AHPETC, but also on the integrity of its leaders. Minister for Culture, Community and Youth Lawrence Wong also commented that AHPETC’s silence on its financial situation may suggest “bigger problems lurking”.

Last month, after being repeatedly pressed for explanations, AHPETC clarified that a counting error had led to its inflated S&CC arrears report.

Corporate governance and political analysts whom TODAY spoke to said the AGO report raised concerns even though there was no evidence of fraud or criminal wrongdoing.

Calling AHPETC’s financial affairs “messy”, National University of Singapore Associate Professor Lan Luh Luh said: “If you don’t exercise care when you take public money, it can be quite serious, because it allows room for fraud.”





AUDITOR-GENERAL’S REPORT ON ALJUNIED-HOUGANG-PUNGGOL EAST TOWN COUNCIL: 5 LAPSES


1. Lack of governance over transactions with related parties
By Tham Yuen-C, Assistant Political Editor, The Straits Times, 10 Feb 2015

THERE were conflicts of interest involved in transactions worth $25.9 million between the Aljunied-Hougang-Punggol East Town Council (AHPETC) and its managing agent, and the town council had failed to properly monitor and manage these contracts, the Auditor-General's Office (AGO) said in its report on the town council's accounts.


These conflicts had arisen as four of the town council's senior officers - secretary Danny Loh Chong Meng, general manager How Weng Fan, and deputy general managers Yeo Soon Fei and Johnson Lieow Chong Sern - had stakes in its managing agent FM Solutions & Services (FMSS) and had verified work and approved payment on behalf of AHPETC to their own company in some instances.

Mr Loh, who is married to Ms How, is also the owner of FM Solutions and Integrated Services (FMSI), a contractor that the town council hired to provide lift maintenance and rescue services.

While such "double-hatting" is common in town councils, AHPETC had failed to disclose and manage the conflicts of interest resulting from it, the AGO said.

It said: "The key officers of AHPETC who had ownership interests in FMSS and at the same time performed a role (for AHPETC) in approving payments to FMSS were in clear conflicts of interests."

These related party transactions were the most glaring lapse highlighted in the AGO's report on the audit of the town council's accounts for FY 2012/13.

The AGO said AHPETC did not properly evaluate transactions involving the four, "hence risking the integrity of such payments".

In its report, the AGO flagged five aspects of lapses in governance of related party transactions that had arisen.

One, it did not disclose fees for project management services by FMSS amounting to $223,000, or for essential maintenance and lift rescue services (EMSU) from FMSS and FMSI totalling $1.28 million, as required by Singapore Financial Reporting Standards for related party transactions.

Two, there was no open competition for procurement of EMSU services in 2011, and the contract was given to FMSS following a tender waiver. The AGO found a lack of due diligence in assessing its fee, and this led to overcharging.

The committee of four AHPETC councillors considering FMSS' proposal informed other councillors that the fee should be similar to that of the previous contractors, and that this was $70,110 per month in all. But the AGO's checks found the actual fee was about $49,000 per month, or 30.1 per cent lower than cited.

The AGO also observed that the fees billed by FMSS for October 2011 to June 2012 averaged $67,000 per month, 36.7 per cent higher than the fees charged by the previous contractors.

Three, auditor PricewaterhouseCoopers (PwC) - hired by the AGO to assist in the audit - did not see any documentary evidence that AHPETC councillors had considered the conflicts of interest involved. This included those for contracts for managing agent and EMSU services totalling $20.7 million awarded in 2012.

Four, AHPETC did not have the necessary checks and balances for payments to related parties. PwC observed 84 invoices amounting to $6.61 million from FMSS and FMSI that were issued and signed by Ms How and Mr Loh.

Five, AHPETC did not comply with the Town Councils Financial Rules as it issued written contracts only after the services had begun, in particular the two contracts totalling $20.7 million awarded to FMSS in 2012.

In its response, AHPETC said it had no intention to hide any material information, as it had specifically made a disclosure under the heading "related party transaction, that had not been made by other town councils".

On why the EMSU contract was awarded to FMSS without a tender, AHPETC said the previous service provider did not want to continue providing the services to the town council.

AHPETC was left with little time to find a replacement, and awarded the contract to FMSS.

It also said it had since recovered $122,411.98 that it overpaid, in a credit note from FMSS.

As for approving the two contracts only after FMSS had started work, AHPETC said this was because FMSS had been continuing in its capacity as managing agent.

AHPETC added that town councillors were also "very much aware" of the four persons' ownership stakes in FMSS, as well as their roles in the town council.

It added that all cheques issued to FMSS also had to be co-signed by AHPETC chairman Sylvia Lim or vice-chairman Png Eng Huat.

AHPETC said it has also put in place further controls and made sure of a segregation of duties.

National University of Singapore professor Mak Yuen Teen, who specialises in corporate governance, said that just because there was a related party transaction did not mean there was an unfair benefit.

"But it's a big deal in the sense that town councils are managing millions in public funds, so it's important for them to have financial controls in place like the government agencies do."




Many hats for two WP supporters
By Rachel Chang, The Straits Times, 10 Feb 2015

THE managing agent of Aljunied-Hougang-Punggol East Town Council (AHPETC) has come under the spotlight again.

FM Solutions & Services (FMSS) is majority-owned by Ms How Weng Fan and Mr Danny Loh. The husband-and-wife team is also employed by AHPETC.

Since Aug 1, 2011, Mr Loh has been secretary and Ms How has been deputy secretary and general manager of the town council.

They formed FMSS shortly after the 2011 General Election, where the Workers' Party (WP) won Aljunied GRC.

FMSS went on to be awarded the contract to be managing agent for AHPETC (known then as Aljunied-Hougang Town Council).

FM Solutions and Integrated Services (FMSI), a company owned solely by Mr Loh, was also paid $88,200 by AHPETC for essential maintenance and lift rescue services for the period from April to June 2012.

The couple are long-time WP supporters, and were assentor and proposer to the WP candidates who contested Ang Mo Kio GRC in the 2006 General Election.

It is not uncommon for party supporters or members to be hired by town councils or to be closely involved with the managing agents appointed by town councils.

Mr Ho Thian Poh, who is secretary of the People's Action Party-run Jurong Town Council, is a member of the party.

He is also the managing director of the town council's managing agent, Esmaco Township Management.

But the Auditor-General's Office said yesterday that AHPETC did not properly disclose or manage potential conflicts of interest, leading to situations where the same individual issued an invoice for work done by FMSS, and then approved payment from the town council for that work.





Duo behind managing agent long linked to WP and Hougang Town Council
By Tham Yuen-C, The Straits Times, 11 Feb 2015

THEY are known as the couple who set up FM Solutions and Services (FMSS) in 2011 to take on the role of managing agent at Aljunied-Hougang-Punggol East Town Council (AHPETC).

But Ms How Weng Fan and her husband, Mr Danny Loh Chong Meng, had cut their teeth in estate management years ago, at the former Hougang Town Council.

Working for Workers' Party (WP) chief Low Thia Khiang since the 1990s, Ms How rose up the ranks from estate manager to secretary of the town council.

Mr Loh, meanwhile, was providing lift maintenance and rescue services to the town council.

The couple are long-time WP supporters, and were assentor and proposer to the WP candidates who contested Ang Mo Kio GRC in the 2006 General Election.

An Accounting and Corporate Regulatory Authority check shows that they are also linked to a number of estate management and property companies.


Besides being a shareholder at FMSS, Mr Loh is also the sole owner of FM Solutions and Integrated Services and a director of DTZ Debenham Tie Leung Property Management Services. Ms How, meanwhile, is an owner of Everbloom Property Services.

The majority-owners of FMSS, who are also employees of AHPETC, came under scrutiny by the Auditor-General's Office (AGO) over their dual roles.

The AGO said AHPETC had not properly managed the conflicts of interest that arose from this arrangement, and this plagued transactions worth $25.9 million between the town council and FMSS. But the town council said it had not hidden any material information on the links.

Among areas of concern the AGO flagged was a contract for lift services that FMSS was awarded in 2012. AHPETC had not called a tender for it, citing time constraints, and had set up a committee of four town councillors to assess the fee proposed by FMSS.

But while FMSS promised to charge rates similar to those of former contractors, it quoted a fee 30 per cent higher. As a result, AHPETC ended up overpaying for the service, AGO said.

The town council said the mistake had happened as FMSS had "used the wrong unit multiplier" to compute prices. It has since recovered $122,411.98 from FMSS in the form of a credit note.

Yesterday, the couple could not be reached for comment.





2. Poor monitoring of S&CC arrears
By Tham Yuen-C, The Straits Times, 10 Feb 2015

THE Aljunied-Hougang-Punggol East Town Council (AHPETC) did not have a system that could monitor its service and conservancy charges (S&CC), nor generate accurate historical data, said the Auditor-General's Office (AGO).

This led to the town council submitting "unreliable" arrears statistics to the Ministry of National Development (MND) and the town council's own finance and investment committee.

"Consequently, there is no assurance that S&CC arrears are properly monitored and managed," said the AGO.

The findings in the AGO report shed more light on the town council's management of its S&CC arrears, for which it was given the worst banding in the latest annual Town Council Management Report that was released in November last year.

The town council had drawn flak from government leaders for the high arrears rate of 29.4 per cent reported for April 2013.

But last month, AHPETC chairman Sylvia Lim said the figure was inflated because of "reporting and human error".

In fact, she said it had reported an arrears rate of 7.42 per cent as of March 2013.

The AGO said that the discrepancies in the numbers between the March and April reports "indicated that one or both the reports were incorrect".

In response, the AHPETC said the lapses were due to hiccups experienced when it took over the town council's management from the People's Action Party after the 2011 General Election.

For instance, it said it was "hampered by a lack of historical data" and could not generate time-based reports on the S&CC charges it was owed.

This was confirmed by IT company NCS, which had been the town council's vendor under the PAP's charge, it said.

The AGO also pointed out "significant discrepancies" in the March 2013 arrears reports that AHPETC had submitted to the MND and its own finance and investment committee.

The report submitted to the MND shows that there are 4,379 households with S&CC arrears of three months or more.

But the report given to AHPETC's finance and investment committee shows 17,502 such households.

AHPETC said the reason for the difference is that the arrears report to MND was sorted by months, whereas the report to its own committee was sorted by days. It added that it has since taken steps to improve its IT system and to develop an arrears reporting module that can generate reports in the format required by MND.

The AGO, in its reply, said the discrepancies were "significant" and "cannot be explained by the difference in time periods used".





3. Non-compliance with rules on sinking fund
By Rachel Au-Yong, The Straits Times, 10 Feb 2015

THE Aljunied-Hougang-Punggol East Town Council (AHPETC) failed to transfer monies to its sinking fund several times. When it did, there were occasions when the transfers were late - or short of the required amount, the Auditor-General's Office (AGO) said.

There were other instances of non-compliance with the Town Councils Act, involving the wrong use of money in sinking fund bank accounts.

"AHPETC did not transfer monies as required to the sinking fund bank accounts and did not manage its sinking funds properly. This included not transferring conservancy and service fees and grants allocated to sinking funds... accurately and promptly for the FY 2012/13."

A town council is required by law to have a sinking fund which it can draw on for the improvement and long-term maintenance of properties it has charge of.

The AGO said the AHPETC did not comply with the Town Councils Financial Rules.

It did not transfer a total of $7.9 million to its sinking fund for the last three quarters of the financial year 2011/12, until it was queried by the AGO.

The following year, it did not transfer funds amounting to about $4 million to its sinking fund on time or in full. In most instances, the transfers were made only after auditors' queries.

The AHPETC also wrongly used or transferred money to the sinking fund, the AGO said.

For example, it paid for a Housing Board-approved upgrading programme with money from the sinking fund, instead of the operating fund as was the right way.

The AHPETC said that the AGO's report showed that, "at all times", money meant for the sinking fund was still in the town council's bank accounts, except it was left in an operating fund account without being transferred.

Acknowledging that this complicated accounting processes, the AHPETC said it would abide by the advice on transferring money meant for the sinking fund first, before making relevant payments out of that account.

Responding, the AGO said it did not conclude that the money was in the AHPETC's accounts "at all times". What it found was that the town council failed to transfer monies to the sinking fund in the last three quarters of FY 2011/12 and that, for some transfers in FY 2012/13, it was late or did not make some deposits in full.

Among improvements the AHPETC says it will now make is working with its IT system vendor to identify sinking fund items that attract goods and services tax. This would ease the calculation of GST refunds later from the Inland Revenue Authority of Singapore.

On the importance of clearly demarcated accounts, People's Action Party MP Zainal Sapari, chairman of the Pasir Ris-Punggol Town Council, said: "If you leave everything in the operating fund, there's a tendency to overspend."





4. Insufficient internal controls
By Rachel Chang, The Straits Times, 10 Feb 2015

THE Aljunied-Hougang-Punggol East Town Council (AHPETC) did not have sufficient internal controls and this exposed it to risks such as the loss of monies or valuables and wrong payment for goods and services, said the Auditor-General's Office (AGO).

The AGO cited issues such as inadequate protection of cheques and safes.

"Cheques received and not banked in by the end of the day were not safeguarded under lock and key," it said.

"All mail, including mail with cheques, was opened in an area accessible to the public. In addition, the mail-opening officer did not maintain a record of all cheques received through mail," it added.

The AGO also noted that AHPETC had not reconciled its bank statements with its records at least once a month, as required by the Town Councils Financial Rules.

In addition, it found a lack of segregation of payment duties.

The AHPETC general manager certified work done and also approved payment vouchers and cheques for the work - tasks that should be segregated.

In response, AHPETC said it has improved its safeguarding of cheques received by mail.

"Cheques not banked in by the end of the day are now placed in the safe. As an additional control, all cheques received are scanned by finance staff into a central server," it said.

Associate Professor Mak Yuen Teen of the National University of Singapore Business School said such internal control issues usually arise in small companies.

"Larger companies find it easier to manage, but for smaller organisations, sometimes you just don't have enough people.

"The key is to make sure you recognise the risk and have compensating controls," he added.









5. Poor record and accounting system
By Rachel Au-Yong, The Straits Times, 10 Feb 2015

THE lack of a proper record-management and accounting system was why the Aljunied-Hougang-Punggol East Town Council (AHPETC) failed to produce accurate financial statements, said the Auditor-General's Office (AGO) yesterday.

The AGO said AHPETC did not adequately safeguard accounting documents for April to July 2011. Thus, its auditor was unable to conclude that its FY 2011/12 financial statements were true and fair. This in turn affected the town council's opening balances for the subsequent financial year.

Part of this arose because AHPETC did not properly manage the transition between its two managing agents - CPG Facilities Management, which ran the Aljunied Town Council when it was under the People's Action Party (PAP) before the May 2011 General Election, and FM Solutions & Services, which ran the Workers' Party's town council later.

The AGO said AHPETC did not put in place a system to account for the relevant documents. It also did not have a formal handing- and-taking-over process when finance staff resigned.

But the problem persisted even for transactions that took place after AHPETC took over, the AGO said. For example, it said it could not locate some requested documents and was looking for others, although such requests had been made at least three months earlier.

An inadequate accounting system also affected AHPETC's ability to provide information on its receivables and advance receipts to its auditor. It also led to incorrectly recorded payments in some instances, which had the effect of reducing the amount of money owed to the town council.

AHPETC also used wrong bill codes for some transactions, resulting in inaccurate accounting. Therefore, its auditor could not determine the validity and accuracy of some of its accounts.

Among other examples, AHPETC overstated its liabilities by over $160,000, said the AGO.

Replying to the report, AHPETC said one of the main challenges was the lack of an IT system that could keep track of things on a larger scale. The previous vendor, the PAP-owned Action Information Management, had terminated its services at short notice.

While it acknowledged that it should have been more vigilant, AHPETC pointed out that a turnover of finance staff in 2011 and 2012, as well as an audit conducted during the handover period of April to July 2012, affected its ability to keep better records.





WP to give full response in Parliament on Thursday
Members of the public should read full audit report to better understand issues: Sylvia Lim
By Siau Ming En, TODAY, 10 Feb 2015

The Workers’ Party (WP) will give its full response to the issues raised in the Auditor-General’s audit findings on the town council it runs when Parliament sits on Thursday, said Ms Sylvia Lim.

In the meantime, members of the public should read the full audit report, which includes some of the party’s response, to have a better understanding of the issues, said the chairman of Aljunied-Hougang-Punggol East Town Council (AHPETC).

“What I would urge members of the public and those who are interested is to look beyond the headlines and the summaries, and to also look into some of the details of the report if they are interested, to have a better understanding of the issues,” said Ms Lim, who was speaking to the media before her Meet-the-People session in Serangoon Avenue 4 yesterday.

Asked what she hopes the public to look out for, Ms Lim, who is WP chairman, said: “I think it’s better for people to go in with an open mind, rather than me trying to preempt certain matters. I would prefer if people read it in totality and I think from there they will get a much better picture of what’s happening.”

The Auditor-General was last year directed to look into AHPETC’s accounts, after independent auditors said they were unable to express an opinion on the town council’s financial statements for two straight years.

In its report made public yesterday, the Auditor-General’s Office (AGO) highlighted a string of lapses committed by AHPETC, including how transactions involving related parties were not fully disclosed in financial statements. AHPETC also did not adequately manage conflicts of interests when it procured services from two companies that were either owned by or had directors and shareholders who are town council employees, the AGO said.

AHPETC’s response in the report said it had “no intention to hide any material information”, adding that it had specifically made disclosures under the heading of Related Party Transaction in its financial reporting, despite other town councils not practising the same.

AHPETC also said it is the norm or a common practice that management personnel of Managing Agents hold key positions in the town councils they manage. “To assist town councils, the relevant authorities could articulate when managing agents and town councils are considered related parties and the extent/details of disclosures required in the town council context.”

Responding to another AGO finding that there were lapses in the management of its sinking funds, AHPETC acknowledged them but added that the monies were, at all times, in the town council’s bank accounts, albeit in the wrong ones. It also said it would rectify the mistakes relating to transfers to and withdrawals from the different accounts.

AHPETC also addressed the lapses pointed out by the AGO in its management of Conservancy and Service Charges arrears, saying it was unable to tell how overdue arrears were because of a lack of historical data from town councils it took over after the 2011 General Election — Aljunied, and Marine Parade town councils.









Conflict of interest, lack of internal controls most serious lapses: Analysts
AG’s report raises questions of integrity, invites scrutiny on how other town councils are run
By Laura Elizabeth Philomin, TODAY, 10 Feb 2015

Even though no evidence of fraud or criminal wrongdoing was flagged by the Auditor-General’s report on Aljunied-Hougang-Punggol East Town Council’s (AHPETC) financial affairs, observers TODAY spoke to raised concerns about the town council’s management of business transactions with companies in which council staff hold ownership interests.

While other lapses in the Workers’ Party-run AHPETC can be attributed to learning the ropes of managing a large town council, such conflicts of interest raise questions of integrity. The issues surfaced by the Auditor-General also suggest the need to scrutinise how other town councils are being run and managed, observers said.

Some lapses described in the report released yesterday include AHPETC’s failure to transfer monies into the sinking fund bank accounts within the time frame stipulated in the Town Councils Financial Rules, and not having a system to accurately monitor arrears of conservancy. AHPETC was also found to be lacking internal controls for safeguarding valuables and handling receipts, and proper bookkeeping systems.

Associate Professor Lan Luh Luh of National University of Singapore’s (NUS) business and law schools said these are mostly “basic things” that can be easily resolved by hiring an accountant.

“There’s no allegation of fraud, but putting money all over and not keeping it in proper accounts, I think that’s very messy,” said Assoc Prof Lan. “If you don’t exercise care when you take public money, it can be quite serious, because it allows room for fraud.”

AN ISSUE OF TRUST

Of greater concern was the finding that AHPETC had not fully disclosed the fact that their secretary, general manager and deputy general managers have ownership interests in two companies the town council hired for estate services.

Also lacking were controls to manage conflicts of interests where these key officers also approved payments from one of the companies.

While the other lapses could be attributed to AHPETC’s difficulties with coping with the workings of a very large town council, Singapore Management University law lecturer Eugene Tan said the issue of related party transactions goes beyond incompetence.

“Earlier on they’ve given indications that they had to take over and so they had no time to go through the regular procedures. Even if that were the case, the fact of the matter is that related party transactions raise the question of whether the residents’ best interests were adequately safeguarded. It also implicates the concerns of integrity and trust. And this is where it will be a lot more challenging for the Worker’s Party (WP) to deal with,” said Associate Professor Tan, adding that this could be a sticking point during elections.

Institute of Policy Studies senior research fellow Gillian Koh felt the issue left the WP with a lot of answer for. “Singaporeans will nevertheless still be generous and wait for the WP to give its response. But knowing how most Singaporeans are a stickler for rules, I think there will be some disquiet as to whether those who present themselves as guardians (are) themselves able to guard their own activities,” she said.

NUS Business School Associate Professor Mak Yuen Teen said politicians may not necessarily be the best people to be managing and worrying about internal governance controls, a task better suited to professionals.

Suggesting that efforts to get governance right may not be unique to AHPETC, he said regular performance and compliance audits could be conducted on all town councils, as is the case with other government agencies. Even with regular audits by the Auditor-General, similar issues of mismanagement, conflicts of interests and pure procurement practices are also reported in ministries and statutory boards, even if they are less pervasive or concentrated in a single organisation.

“Wouldn’t similar issues be occurring in the town councils given that they manage a lot of funds? And in fact the stat boards quite often do have better staff ... Because of the set-up of the town councils, maybe the risks are even higher in terms of poor management and governance,” added Assoc Prof Mak.

WHAT RESIDENTS THINK

Residents living in estates managed by AHPETC appeared unalarmed by the report, but expressed concerns about possible consequences of the town council’s lapses. Kaki Bukit resident Adeline Lee, 54, said insufficient monies in the sinking fund could affect the upgrading of the estate, while financial analyst Fang Zhiheng, 32, who lives in Lorong Chuan, said estate maintenance standards could suffer if funds are not well managed.

Residents also called for greater transparency and accountability. But Bedok Reservoir resident Ashton Chong, 28, added: “I would not discredit the town council yet based on this experience, because they have not been found guilty of intentionally misusing the public’s funds. It seems they are more likely to be lacking in experience in procurement and financial aspects.”





Operating and sinking funds must be kept separate, say experts
By Charissa Yong, The Straits Times, 11 Feb 2015

TOWN councils must take care to keep their operating and sinking funds separate because they are meant for different uses, said experts yesterday.

They warned that placing money into the wrong fund can cause future problems of overspending.

Their comments come after the Auditor-General's Office (AGO) found that the Workers' Party- run town council had mistakenly paid for everyday upgrading works from its sinking fund, which is earmarked for longer- term maintenance works.


By law, a town council can use its sinking fund to pay only for cyclical projects, such as repainting common areas, replacing water tanks and upgrading lifts.

Short-term maintenance, such as daily cleaning and grass-cutting, should be paid for out of the operating, or routine, fund.

The Aljunied-Hougang-Punggol East Town Council (AHPETC) also failed to transfer to its sinking fund the correct amount of service and conservancy charges (S&CC) and government grants, the AGO found in its report released on Monday.

Instead, AHPETC kept these monies in its operating fund.

About 30 per cent to 35 per cent of S&CC monies must be transferred into the sinking fund every three months, by law. But for most of the 2011/12 financial year, AHPETC made no transfers to the sinking fund.

Because the sinking fund is used for long-term works, any shortfall may not be missed immediately, said National University of Singapore (NUS) real estate associate professor Yu Shi-Ming.

But he added that "if money that is meant for the sinking fund stays in the routine fund... it gives the town council the false impression that they have more money to spend on daily operations".

Problems may then arise if funds for long-term works are used up because they were misclassified as operating monies. In such a case, the town council might have to ask residents to top up the sinking fund, said NUS real estate associate professor Lim Lan Yuan.

Tampines GRC MP and town council chairman Baey Yam Keng said making regular contributions to the sinking fund is important to ensure that enough money is stored up for long-term maintenance.

"The cyclical works may come in spikes, so we have to plan for it many years in advance," he said.

For instance, lifts are overhauled about once every 28 years. This costs $200,000 per lift for a typical block of 100 flats, which usually has two to three lifts.

AHPETC's reply to the AGO report was that it kept the sinking fund monies in its bank accounts at all times. But the AGO said it could not reach the conclusion that the money is in the bank at all times.

AHPETC said it has since made sure that the sinking fund will be properly used and maintained. It has also transferred past amounts owed into the sinking fund.





Safeguards and steps to avoid conflicts of interest
By Rachel Chang, The Straits Times, 11 Feb 2015

THE two worlds of town councils and the companies they hire to manage estates often overlap.

Town councils sometimes take on staff from the companies they hire to provide services to make for smoother operations.

But in the case of Aljunied-Hougang-Punggol East Town Council (AHPETC), its general manager and secretary are not just employees of a company hired by the town council, but majority owners with financial stakes in them.

In other words, they stand to gain financially from decisions they are party to as town council executives.

Corporate governance experts said what is appropriate in a situation that involves "double-hatting" individuals with ownership interests is for safeguards to be in place to isolate them from decisions involving their second hats.

At AHPETC, this was not the case, said the Auditor-General's Office (AGO) in its audit report of the financial accounts of the Workers' Party-run town council.

AHPETC's secretary Danny Loh Chong Meng and general manager How Weng Fan are majority owners of its managing agent company, FM Solutions & Services (FMSS).

The AGO found that AHPETC did not properly disclose or evaluate transactions where such potential conflicts of interests were present, putting the integrity of $25.9 million worth of payments at risk.

Some of its senior staff, such as its secretary and general manager, owned companies that the town council had contracted to provide estate management services. The staff involved in approving payment also had ownership interests in the company that was receiving the payment.

AHPETC, in its reply to the AGO report, disputed that there was inadequate disclosure of potential conflicts among their staff. "The Town Councillors were very much aware of the details of composition of FMSS and the relationship of the directors and shareholders as town council management," it said.

Auditors said the proper procedure is for the "double-hatting" individual with an ownership interest to abstain from decision-making on tenders with potential conflict.

In addition, all instances of potential conflicts must be reported to an oversight body, like the board of directors, for approval.

The chairmen of People's Action Party-run town councils, like MP Zainal Sapari of Pasir Ris-Punggol Town Council, said that is the way they handle double-hat staff even when there is no ownership conflict.

PAP MP Zaqy Mohamad, who chairs Chua Chu Kang Town Council, said "the individual should have a role that doesn't have to do with finances or awarding of contracts, like managing residents' feedback".





Parliament to discuss AHPETC audit, call for stronger laws on town councils
By Rachel Au-Yong, The Straits Times, 10 Feb 2015

When Parliament next sits on Thursday, it will discuss the accounting lapses found in a recent audit of the Aljunied-Hougang-Punggol East Town Council (AHPETC) and support stronger laws to govern town councils.

It will also call on all town councils to "uphold high standards of accounting, reporting and corporate governance so as to safeguard residents' interests", according to a motion that will be introduced by National Development Minister Khaw Boon Wan.

This comes after the Auditor-General's Office (AGO) on Monday publicly released its audit report on AHPETC, after a year-long audit exercise.

Mr Khaw's motion will state that Parliament "notes with concern" the AGO's report, especially the findings on deficiencies in AHPETC's accounting systems, the uncertain accuracy of the town council's accounts and the lack of proper disclosure and oversight of related party transactions.

It will also touch on the risk that AHPETC has failed to properly manage and spend public funds.

AHPETC and Workers' Party chairman Sylvia Lim said on Monday night that the town council will "give its full response" during the Parliament sitting.

She also asked members of the public to "look beyond the headlines and summaries" and read the details in the report for a better understanding of the issues.

In its 59-page report, the AGO identified five broad areas of weakness in AHPETC's accounting practices.

These involved a failure to transfer monies into its sinking fund on time, inadequate disclosure and supervision of related party transactions leading to conflicts of interest, not putting in place a system to monitor service and conservancy charge arrears, weak internal controls, and deficiencies in the town council's record management and accounting systems.

The AGO concluded: "Unless the weaknesses are addressed, there can be no assurances that AHPETC's financial statements are accurate and reliable, and that public funds are properly spent, accounted for and managed."









WP Town Council saga: What it's all about
The Straits Times, 10 Feb 2015

FEB 10, 2014: Aljunied-Hougang-Punggol East Town Council (AHPETC) submits its audited FY2012/13 accounts to the Minister for National Development six months late and after seven reminders.

FEB 13: The Ministry of National Development (MND) expresses concern that it is the second year that AHPETC's auditors had made a submission with a note saying they were unable to fully verify the accounts.

FEB 14: AHPETC chairman Sylvia Lim says the MND's statement is incomplete and misleading, as the Workers' Party (WP) has not been able to get data from the former managing agent after it took over Aljunied GRC in 2011, as well as from the authorities like the MND.

MND points out that the auditors raised 13 issues of concern, four of which were made a year earlier and which AHPETC had promised to fix but had not.

The remaining nine issues, such as its failure to transfer monies to the sinking fund, have nothing to do with handover issues.

FEB 19: Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam directs the Auditor-General's Office (AGO) to audit AHPETC's accounts.

MARCH 7: AHPETC is given a red grade, the worst rating, for corporate governance, in a government report on the performance of town councils.

NOV 5: The annual town council report shows AHPETC is the only one to get red scores, for corporate governance (second year in a row) and service and conservancy charge (S&CC) arrears management (third year running).

NOV 7: Minister of State for National Development Desmond Lee says AHPETC's finances may be worse than stated. Its shocking arrears rate of 29.4 per cent means 39,000 households are subsidising 16,000 households that did not pay their S&CC.

NOV 10: Ms Lim says AHPETC is studying the data on its overdue S&CC and will address the issues after the AGO completes the audit of its financial statements.

She says AHPETC was unable to submit S&CC reports required by MND as its finance team was preparing documents for the AGO.

NOV 13: MND points out that AHPETC stopped submitting monthly S&CC arrears reports after April 2013.

DEC 5: A WP tender for a managing agent for AHPETC closes after three weeks without a bid from any company, including its current agent.

DEC 9: Minister for Culture, Community and Youth Lawrence Wong says WP's continuing silence on AHPETC's poor performance rating suggests bigger problems.

DEC 10: Ms Lim replies that AHPETC has already explained to MND its problems in submitting reports. She adds that "more productive discussions can be entered into" after the AGO's findings.

DEC 11: MND's Mr Lee says WP's failure to give answers calls into question its leaders' reputation and integrity.

DEC 12: Ms Lim reiterates that it will account for AHPETC's handling of the S&CC arrears and adds that WP will leave the matter for the people to judge.

JAN 14, 2015: WP takes steps to collect some S&CC it is owed.

JAN 26: WP says human error accounts for AHPETC's erroneous reporting of a high arrears rate. AHPETC's latest S&CC arrears rate as of end-September last year is 5.66 per cent for homes, and 7.24 per cent for businesses.





Workers' Party 'needs to clear air over AGO's report'
Observers seek answers; some will wait and see, and hear WP out
By Rachel Au-Yong and Rachel Chang, The Straits Times, 11 Feb 2015

THE reputation of the Workers' Party (WP) in managing a town council has been dealt a blow by the Auditor-General's report this week, but it remains to be seen if its political fortunes will be affected, observers and residents said.

They added that the ball is now in the WP's court to account for and explain in Parliament the lapses that the Auditor-General's Office (AGO) found in its audit of the financial statements of the Aljunied-Hougang-Punggol East Town Council (AHPETC) for financial year 2012/13.

The House will debate the report when it sits tomorrow.

Observers interviewed yesterday said the AGO's report, which found five major areas of governance and compliance lapses, had serious consequences for the town council.

National University of Singapore real estate associate professor Lim Lan Yuan noted that a lapse in managing arrears of service and conservancy charges "affects the financial capability of the town council in the long run".

"I would say if these lapses occurred in a town council run by a PAP MP, this MP is likely to go, and never be forgiven," he said.

Former Nominated MP Zulkifli Baharudin said the reasons AHPETC had given for its lapses, like its limited resources - the town council is the biggest ever run by an opposition party - and its inexperience, are unconvincing.

He said: "It shouldn't be that if you're from a smaller party, your standards are lower. If someone votes for the opposition, it's because he thinks they can do a better job. You can't join politics and say that you're inexperienced."

But some observers noted that the AGO's discovery of AHPETC's lapses is not the same as a discovery of loss of public money or criminal wrongdoing.

This could be why several voters interviewed said they are adopting a wait-and-see approach.

Aljunied GRC resident Rachel Singaram, 46, a teacher, said that while the lapses are "a big deal, if there's a proper explanation, I might still vote for them".

Fellow GRC resident K.G. Sin, 72 and a retiree, felt the town council needed time to gain experience, adding: "There might be some mismanagement, but it's not cheating."

But long-time Hougang resident Ramlee Ahmat, 62, a retiree, disagreed: "We are paying all this money in service and conservancy charges and it's not being managed in a way that it should be.

"If the AGO didn't do this audit and it didn't appear in the press, we as residents wouldn't even know. I don't agree this is not a big issue just because there is no money missing.

"If you give them a chance, you are condoning it and it can get out of control. This is public money you are talking about."

Mr Zulkifli noted that even if AHPETC had not run afoul of the law, "then it is up to the residents to decide if the WP is doing a good job for the wards as a whole, not just in areas like cleanliness".

Parliament is expected to discuss the oversight powers the Government has over town councils.

Mr Sidney Lim of business consulting and internal audit firm Protiviti said the episode shows the need for a thorough framework governing town councils.

But Singapore Management University law professor Eugene Tan, a former NMP, cautioned against either the WP or the People's Action Party over-politicising the report.

"As much as the focus (at tomorrow's parliamentary sitting) is going to be on the WP, it will also be on MND (Ministry of National Development) and the actions it will take," he said. "If it looks like either the WP or the ruling party is trying to extract political mileage from this, it could backfire."





Getting to bottom of town council saga
Editorial, The Straits Times, 11 Feb 2015

IT IS obvious that the Auditor-General's Office has taken pains with both the audit of the Aljunied-Hougang-Punggol East Town Council (AHPETC) and its carefully-worded 59-page report. Given the ready assumptions of cynics that the ruling party is out to discredit the opposition-run council, it was important to get to the facts of the long-running issues. This was an exercise the Auditor-General was legally bound to conduct as public funds were involved. Indeed, if the Government had deemed it impolitic to probe the Workers' Party's (WP's) management of the council, that would have been a dereliction of duty, especially after the council's own auditors had declined to give the accounts a clean bill of health for two years running. Such a finding would have caused a legitimate stir among a company's shareholders or stakeholders of a charitable organisation had it applied to them.

Even after giving the AHPETC the benefit of the doubt - for inexperience, mistakes and IT system limitations - one is left with disturbing questions after perusing the audit report. These must be answered fully, as WP leaders have said they would when the report is debated in Parliament this week. For example, there are some glaring numbers that are mystifying, such as how the council went from an operating surplus of $3.3 million in 2010 to an operating deficit of $734,000 by 2012, after it took charge. Just how did this happen? And what would it portend if this trend continued unchecked?

Equally troubling is the A-G's account of the web of relationships that created conflicts of interest in the way the council was managing transactions, with a husband and wife at the helm and senior managers who are also owners of companies awarded contracts by the council. The picture painted was not of small sums, as the related-party contracts flagged by the A-G amounted to $25.9 million, and with some fees paid being nearly a third higher than previously charged. Similarly, questions will be raised about why the party failed to set aside millions into its sinking fund for essential maintenance, as was required under the law.

Citizens expect that essential services and the proper management of funds will not be subject to the vagaries of politics. They will also want answers to the questions raised by the A-G's report, which concluded that it could offer no assurances that the town council's financial statements are accurate and reliable and that public funds had been well spent and accounted for. While the Auditor-General stopped short of alleging any criminal wrong-doing, the Workers' Party has a duty to look into the concerns raised by the A-G's audit so that its residents are given the assurances they deserve.





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