POSTED: 04 May 2015, CNA
SINGAPORE: The Ministry of National Development’s (MND) application to the courts to appoint independent accountants to safeguard government grants to the Aljunied-Hougang-Punggol East Town Council (AHPETC) is not a move as part of a “political dispute”, said its lawyers on Monday (May 4).
Attorney-General’s Chambers Deputy chief counsel for litigation Aurill Kam, who is acting for MND, said that the Workers’ Party-run town council has “mischaracterised” MND’s actions by saying that it is action between the ruling People’s Action Party and the WP.
Speaking at the start of a two-day hearing in the High Court, Ms Kam said that it is action between MND, which has regulatory oversight over the Town Council Act, and AHPETC, which is a statutory body.
“This concerns obligations of a statutory body that is holding funds. The leadership of the town council being WP members is not the point. These are legal questions,” she said.
The court hearing is the latest development following a report by the Auditor-General’s Office in February that flagged lapses in the town council’s books.
STEPS TAKEN ‘INADEQUATE’
On Monday, Ms Kam said that the steps taken to date following the report have been “inadequate”.
She noted that AHPETC has appointed an external accounting firm Audit Alliance to look at their accounts, and financial consultants Business Assurance to review their processes.
But she pointed out that Business Assurance – a sole proprietorship that was set up last February – does not appear to have the necessary expertise to advise on or carry out reviews, and does not appear to have a good understanding of town council operations.
“There is no evidence that the town council has sought help from professionals with good track records,” she added.
Ms Kam said even when completed, the work of both companies would not shed light on any wrongful payments, breach of duty, or unlawful conduct. She said this means there would be no duplication in the scope of work by court-appointed independent accountants.
MND has said it would release about S$14 million in grants to the town council – which have been withheld so far – if these accountants are appointed.
AHPETC ACCOUNTABLE TO RESIDENTS: LAWYER
In the afternoon, AHPETC admitted that for FY2014/2015, they had only made two transfers to the sinking fund, and that they had been late in doing so. They also admitted to breaching the Town Councils Act and Town Council Financial Rules.
However, AHPETC’s lawyer Peter Low argued that under the Town Councils Act, the MND cannot bring legal proceedings against a town council and that this can only be done by a resident, or by the HDB. If there is any suspicion of criminal offence, MND could refer AHPETC to the Criminal Investigation Department or Commercial Affairs Department, he said.
When asked by Justice Quentin Loh if residents would just have to wait till the next election if lifts broke down or funds were mismanaged, Mr Low initially said yes.
He later clarified that there were in fact two instances in which the minister could appoint a person to perform the town council’s duties – that is when there is a failure to maintain common properties, or a failure to remove anything that could cause imminent danger to residents.
Earlier, the court heard that AHPETC had enough funds to last until June this year – but this would be premised on them not making transfers to the town council’s sinking fund. Quarterly transfers to the sinking fund are mandatory – and the money is used for long-term estate maintenance.
Before heading into the courtroom on Monday morning, town council chairman Sylvia Lim said she would not be able to comment further as the case was before the courts, but added that the town council would be mounting a “vigorous defence”.
“We are doing this in the interest of our residents, and we believe this court case is wholly unnecessary,” she said. She was accompanied by fellow Member of Parliament from The Workers’ Party, Faisal Manap.
POSTED: 09 Feb 2015, CNA
Auditor-General finds ‘major lapses’ in Workers’ Party-run town council accounts
SINGAPORE: The Auditor-General has flagged major lapses in “governance and compliance” following an audit of Aljunied-Hougang-Punggol East Town Council’s (AHPETC) accounts for the Financial Year 2012-13. National Development Minister Khaw Boon Wan will be moving a motion in Parliament on Thursday, based on the Auditor-General’s 17-page report, which was released to the public on Monday (Feb 9).
The AHPETC has said that it will respond to the report in Parliament on Thursday.
“I understand as of today there will be a motion in Parliament filed for this Thursday’s sitting, 12th of February to debate this matter. So the Town Council will give its full response at the sitting itself,” said AHPETC chairman Sylvia Lim before her Meet-the-People session on Monday. She said she received the report on Saturday.
“I would urge also members of the public and those who are interested to also look beyond the headlines and the summaries and to look at some of the details of the report if they are interested to have a better understanding of the issues,” she added.
In February 2014, Finance Minister Tharman Shanmugaratnam directed the Auditor-General to conduct the audit after the Workers’ Party-run town council’s own independent auditor had raised 13 issues of concern in a disclaimer of opinion in report on the town council’s FY2012-13 accounts. This was up from the four areas of concern flagged in FY2011-12.
AHPETC was formed following the merger of the Aljunied, Hougang and Punggol East Town Councils following the Workers’ Party’s General Election and by-election victories in Aljunied in May 2011 and Punggol East in February 2013.
As part of its audit, the Auditor-General’s Office (AGO) interviewed AHPETC staff, examined records, files, reports and other documents obtained from the relevant parties. It also engaged PricewaterhouseCoopers Consulting (PwC) to review selected areas of AHPETC’s accounts.
The AGO submitted its final report to the Ministers of Finance and National Development on Feb 6, and a copy of the report was made available to AHPETC the following day, according to a joint press release by the Finance Ministry and National Development Ministry on Monday.
In its report, which has been sent to all Members of Parliament, the Auditor-General highlighted five “major lapses” in governance and compliance:
Failure to transfer monies into the sinking fund bank accounts as required by the Town Councils Financial Rules;
Inadequate oversight of related party transactions involving ownership interests of key officers, hence risking the integrity of such payments;
Not having a system to monitor arrears of conservancy and service charges accurately and hence there is no assurance that arrears are properly managed;
Poor internal controls, hence risking the loss of valuables, unnecessary expenditure as well as wrong payments for goods and services; and
No proper system to ensure that documents were safeguarded and proper accounts and records were kept as required by the Town Councils Act.
Based on its audit observations, the Auditor-General concluded that the “financial statements for FY 2012/13 prepared by AHPETC did not accurately reflect the state of affairs and transactions of AHPETC.
“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,” the AGO said.
Among the “major lapses” highlighted in the report:
LAPSES IN MANAGEMENT OF SINKING FUNDS
The AGO said AHPETC had not complied with Town Councils Financial Rules, which state that sinking funds are required to be separately maintained by Town Councils for the improvement and long-term maintenance of properties.
AHPETC failed to make the required transfers to sinking fund bank accounts for the last three quarters of FY2011-12, while some transfers made in FY2012-13 were late and short of the required amounts.
For example, the Auditor-General found that AHPETC did not make any transfers to its sinking fund bank accounts for the last three quarters of FY2011-12, and only transferred S$7.44 million on June 30, 2014, following the AGO’s query.
For FY2012-13, the town council only transferred S$1.5 million to its sinking fund bank account one month before the end of the financial year, with a further transfer of S$2.74 million made on Jan 16, 2014 – nine months after the financial year had ended. An additional S$1.2 million was transferred on Jun 30, 2014, following AGO’s query
“In most instances, the transfers were only made after auditors’ queries,” the AGO noted. “In addition, there were other instances of non-compliance with the Town Councils Act involving wrong use of monies in sinking fund bank accounts.”
LAPSES IN GOVERNANCE OF RELATED PARTY TRANSACTIONS
The town council did not fully disclose the related party transactions in its financial statements, nor did it adequately manage the conflicts of interests of related parties arising from ownership interests of its key officers, in contracts amounting to about S$25.9 million in total, the AGO said.
For example, the AHPETC Secretary was the owner of FM Solutions and Integrated Services (FMSI) – one of two companies engaged to carry out managing agent services, as well as essential maintenance and lift rescue (EMSU) jobs. The Secretary, General Manager and Deputy General Manager of AHPETC were directors and shareholders of the other company, FM Solutions and Services (FMSS), the AGO 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,” the AGO said. For example, the town council’s General Manager both issued payment claims as director of FMSS while approving the payment as AHPETC staff.
AGO also a “lack of due diligence” in assessing the fee proposal submitted by FMSS for the procurement of EMSU services in 2011.
“The committee of four AHPETC Town Councillors appointed to consider FMSS’ proposal informed the other Town Councillors that the fee payable should be about the same as the combined fees charged by the two incumbent contractors and that the combined fees was $70,110 per month. However, AGO’s checks revealed that the combined fees of the incumbent contractors was about $49,000 per month, which was 30.1 per cent lower than what the Committee had informed the other Town Councillors,” the report said.
“AGO observed that the fees billed by FMSS for the period October 2011 to June 2012 averaged $67,000 per month which was 36.7 per cent higher than the combined fees charged by the two incumbent contractors at the time of tender.”
Also, AHPETC did not disclose in its FY 2012-13 financial statements the amount of fees for project management services and EMSU services rendered by the related parties, falling short of Singapore Financial Reporting Standards, according to the report.
In the procurement of EMSU services from FMSS in 2011, the town council waived the calling of an open tender, while there was a lack of due diligence in assessing the fee proposed, the AGO said. “As a result, the information used in approving the contract and the fees was incorrect, which led to fees paid being higher than intended.”
LAPSES IN MANAGEMENT OF ARREARS OF CONSERVANCY AND SERVICE CHARGES
AHPETC did not have a system to monitor the scale of its Conservancy and Service (C&S) arrears accurately, said the AGO, which called the arrears data submitted to MND as well as AHPETC’s Finance and Investment Committee “unreliable”. The AGO noted discrepancies in the figures submitted in March and April 2013.
“Hence, there is no assurance that AHPETC is able to monitor and manage its C&S arrears properly or present an accurate picture of arrears in its financial statements,” it said.
LAPSES IN INTERNAL CONTROLS AND PROCUREMENT
Such lapses exposed the town council to the risk of loss of money and valuables, as well as the possibility of commitment to expenditure without needed approval, said the AGO.
Among the lapses observed in this regard include the failure to prepare monthly bank reconciliation statements; adequate controls to safeguard valuables and the handling of cheques; a lack of compliance to rules on the approval of procurement in a number of instances; and segregating duties within the payment process for some external vendors.
INADEQUACIES IN RECORD MANAGEMENT AND ACCOUNTING SYSTEM
The town council “did not properly manage” the transition between former managing agent CPGFM and FMSS in 2011, the AGO said.
AHPETC did not ensure that documents were properly accounted for and safeguarded, it added. For example, the town council could not provide supporting documents for April to July 2011.
The AGO also noted several instances in which amounts collected and paid out were not properly monitored, recorded and accounted for. “As a result of the inadequacies, AHPETC’s financial statements for FY 2012-13 did not accurately reflect AHPETC’s state of affairs and transactions,” the AGO said.