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.
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.
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.