Friday 13 February 2015

Shanmugam: AHPETC setup designed to let friends benefit

Law and Foreign Minister K. Shanmugam's speech on issues at Aljunied Hougang Punggol East Town Council
The Straits Times, 13 Feb 2015

ALJUNIED GRC is one of the largest GRCs in Singapore. It has more than 150,000 residents, mainly living in three-, four-room HDB flats, honest people, they work hard to raise their families, make a living, pay their service and conservancy charges every month. They trusted the WP (Workers' Party) with their hard-earned money.

The report from the Auditor-General's Office (AGO) raises serious questions - about the conduct of the (Aljunied Hougang Punggol East Town Council) town councillors, and what they did with the money of the honest residents of Aljunied, Hougang and Punggol East.

One: The AGO report makes clear that the AHPETC allowed millions of dollars to be paid to related parties in breach of their legal, fiduciary duties. The payments were unlawful.

Two: These payments were done without transparency or accountability.

Three: The AHPETC suffered a loss because of the payments to the related parties.

Payment of millions to related parties

ON MAY 8, 2011, the WP won Aljunied. Seven days later, on May 15, a couple (Mr Danny Loh and his wife How Weng Fan) set up a company, FMSS.

Mr Loh also owned a sole proprietorship, FMSI. The town council (TC) gave the managing agent (MA) contract to FMSS in 2011. The TC also gave three more contracts to FMSS over the years. Total value of the contracts was about $27 million. Ms How became the general manager and Mr Loh the secretary of the TC. Another FMSS shareholder, Mr Yeo (Soon Fei), became the deputy general manager of the town council.

It is common practice across Singapore that when a town council engages the managing agent, a major part of the MA contract is to provide the town council with its key management personnel to supervise the day-to-day running of the TC. We would thus naturally expect the TC's key management personnel, its secretary, general manager and deputy GMs, to be employees of the MA.

MND (Ministry of National Development) does not prohibit this. MND has allowed it in response to town councils' feedback. However, in all these 25 years, in no other town council except AHPETC are the secretary, general manager, deputy GMs not just employees of the MA but complete owners of the MA.

Their ownership interest and control of the MA is what distinguishes Aljunied TC from all other TCs. That makes any transaction between the TC and FMSS and FMSI a related party transaction that has to be disclosed under FRS (Financial Reporting Standards).

For AHPETC, its own auditors raised queries which the TC refused to answer. When employees don't own the MA they cannot be said to have a serious personal financial interest in each such transaction. But with AHPETC, the position was different: The MA was owned by Mr Loh, Ms How and Mr Yeo. The payments they were verifying and approving on behalf of the TC were going directly into their pockets.

Mr Loh and Ms How issued invoices on behalf of FMSS and FMSI. Ms How and Mr Yeo, acting on behalf of the TC, then certified the work for payment - to their own company. Ms How then approved the payment vouchers, cheques to be issued by the TC - for payment to her own company FMSS, and FMSI. Mr Loh then on behalf of the TC signed the cheques for payment to his companies. The cheques were then co-signed either by Ms Sylvia Lim or Mr Png (Eng Huat).

About $6.6 million was paid out in just one financial year (2012/2013) in this way. If similar payments were made in the other years, then they won't be much less than $20 million.

This arrangement was designed deliberately, it was not accidental, it is really a husband and wife team who are hardcore supporters of the WP, close to some of the WP town councillors. They must have been highly trusted. They were the assenter and proposer for the WP in the General Election of 2006.

The conflict of interest is apparent, real and serious. It would have been a serious breach of fiduciary duties for any town councillor to have approved this process.

Overpaying fees for managing agent

THE second way in which the TC was run for the benefit of FMSS... was by inflating the MA fees paid to FMSS.

The TC decided to pay significantly higher MA fees to FMSS compared with all other TCs. The total MA fees paid by the TC to FMSS was nearly $22 million over four years.

A comparison of the MA rates in Singapore for 2014/15 (shows that) FMSS charges the TC $14.92 for each commercial unit compared with $4.80 and $6.65 for all other TCs. Likewise, FMSS charged the TC $7.43 for every residential unit. Others charge between $4.80 and $6.65 and, from July 2014, FMSS increased its rates even more. The rates are now $15.82 and $7.88.

If you take the weighted average of MA fees paid by other TCs, it is $5.72 each for both residential and commercial units. The difference therefore on an annual basis between what the TC paid FMSS and what others pay their MAs is about $1.6 million every year. That's not the profit, that is just the difference. This $1.6 million is on top of the profit that FMSS was making.

The rhetoric from the WP is always about helping the poor man, the reality is that the WP took money from the man in the street to give to their friends in FMSS.

Mr Low (Thia Khiang), Ms (Sylvia) Lim keep saying there's been no loss. Maybe there was no one taking money through the back door in the dark of the night, there was no need because the money was taken from the front door in broad daylight through all this overcharging.

Lack of disclosure

THE second major problem arising from the facts is lack of transparency, lack of disclosure. First, the facts do not seem to have been fully disclosed to all the town councillors. And second, there seems to have been no proper discussion of the conflicts at all. The town council also refused to give details to PricewaterhouseCoopers - which was requested as part of the AGO audit.

Active, persistent non-disclosure. Obviously, deliberate. And the consequence of all of this? Of the millions that were paid to FMSS, who knows how much was justifiable?

How much monies were lost?

MS SYLVIA Lim and Mr Low (Thia Khiang) have been quick to say that despite all the problems, no TC monies have been lost. Can she or anyone else honestly say that no monies have been lost? When the town councillors act in breach of their fiduciary duties; and pay Mr Loh and Ms How millions of dollars? Overpayment to a related party is not a loss?

It is a really strange statement from Ms Lim. The House is burning - and she is standing in front of it and says - you know, there has been no "loss". Is it possible that she does not recognise loss even when it is staring before her face?

Let us try and put a number on the monies that have been paid to FMSS in breach of fiduciary duties. First the MA fees of $22 million. The overcharging could be $6.4 million. Perhaps more. Add in other amounts which were paid to FMSS, without any adequate check or control. $6.6 million in one year. Four years - what would the figure be? That's before you even look at issues like blatant double charging or overcharging.

The AGO was not asked to do a forensic audit. So they did not check all the items. They only checked the general processes. And even that only for one year. So you cannot say based on AGO audit that no money was lost. AGO has made that clear.

Let us put this in layman terms: You have a business, with cash, valuables belonging to other people. You don't know exactly what you have. You put a friend in charge. They take what they want of the cash. You overpay them several million dollars. You don't check. Auditors say your accounts are in a mess, the accounts are unreliable. In fact you say yourself that you can't produce the accounts. Auditors say you have no clear idea of what has happened to the cash.

And you come and you say: no money is lost. One can only wonder at such a statement.

And the money was lost not through accident. The structure was approved by at least some of the town councillors for your party supporters to form a company and do all of this.

This is not just a question of negligence, or inexperience. You don't need many years of experience to know that you shouldn't let your friends do what they like with public funds.

We will only get a full picture of what monies were lost if there was a forensic audit of the TC from May 2011 to January 2015. It will be quite easy for the TC to find out how much money exactly FMSS and FMSI made. All of you have to do is to ask them to produce their accounts and bank balances.

FMSI is a sole proprietorship. So the rest of us here and the rest of Singapore will not know what they made. The basic point is that while the TC lost money, FMSS and FMSI made money. The TC can find out the answers. Will it do so?

Mr Low said to this House that the town council had no choice but to appoint FMSS. He played the victim. No one else wanted to tender to be the managing agent for the town council because it is an opposition ward. Lucky to have Ms How to the rescue, he says, because she had some experience from Hougang.

When the Workers' Party MPs took over the town council on May 8, 2011, there was an existing MA contract with CPG. This was due to expire only on July 31, 2013, two more years to go. And the contract was such that it could not be terminated by CPG. It could only be terminated by the Workers' Party.

The Town Councils Act provides for continuity. There was no need to start from scratch. Ms Sylvia Lim says CPG asked to let go. Maybe so. But it was up to the Workers' Party whether they wanted to let CPG go.

But you had already decided what you wanted. So let us not pretend here. FMSS was set up on May 15, 2011, seven days after the GE. And you decided to replace CPG with FMSS. Ms Lim has said that discussion on termination started in end of May. That was after you set up FMSS. Taking over was premeditated, to hand over the managing agents to the parties that you wanted to.

You said having Ms How was lucky, but I think one can conclude from the AGO report that it has not been so lucky for the residents, seeing how they have been shortchanged.

The AGO report makes for sad reading. They (AHPETC) didn't manage the sinking fund, their data is unreliable, they have submitted reports with significant discrepancies and looks like they're not even able to monitor the overall state of what residents pay in S&CC fees, they don't perform bank reconciliations required by the TCFR (Town Council Financial Rules), they don't properly control receipts and handling of cheques, the prompting systems and procedures are inadequate, they don't check on amounts collected, paid out, receivables, their own auditors... heavily and seriously qualified the accounts for FY2011/12 and 2012/13; and for FY2013/14 no audited accounts have been submitted - it's well overdue.

Basically, your TC is in shambles. It is quite amazing to hear you stand up and say everything is okay. If you were a listed company, by now your shareholders would have sued you because you collect public funds every month and you have a duty to account to your residents.

In conclusion, I say this to the AHPETC town councillors: Each of you appear to have seriously breached your fiduciary duties.

On behalf of the residents of Aljunied GRC, more than 150,000 of them, hard-working, honest people, we have to ask the WP to come clean and explain yourselves to the public. Your residents deserve some real, honest answers.

WP must now walk the talk, take action

AHPETC paid Managing Agent estimated S$1.6 million a year more than other TCs: MND

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