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Debate on the Auditor-General’s Report on the Audit of AHPETC

Introduction

Madam Speaker, in Minister Khaw Boon Wan’s letter to Minister of Finance dated 18 Feb 2014, the Minister highlighted four issues in particular that he felt were not addressed by the Aljunied-Hougang-Punggol East Town Council (hereafter referred to as AHPETC or TC).  This lead to his request to the Minister of Finance to carry out an audit of the Town Council (TC) through the Auditor-General’s Office (AGO).

Ms Sylvia Lim has already spoken on the first two points covering Related Party Transactions and transfer of Sinking Funds.

The third issue, on the failure to make available accounts and records after the audit period FY12/13 available to the auditor Foo Kon Tan (FKT), called “Subsequent Event Review”, has been addressed by the AGO. The AGO found no significant matters in these documents that would materially affect AHPETC’s FY12/13 financial statements.

I will speak largely on the fourth matter raised in the Minister’s letter to the Finance Minister, covering the unexplained differences in the figures under audit amounting a total exceeding $20m. This matter overlaps to some extent with the observations made by the AGO summarized as items four and five in its main report. This broadly covers Lapses in Internal Control and Procurement and Inadequacies in Record Management and Accounting System.

S/No Disclaimer Amount  AHPETC Remedial Action & Enhancement
1 Lift Upgrading and Lift Expenses $20.2m Regularised and cleared.
2 Receivables from Stakeholders $3.1m CCC: Cleared with AGO assistance.
IRAS: Main sum reversed out and regularised.
Sundry Debtors: AHTC managed to trace about $1.5m as received.
New Process: AHPETC has adopted monthly debtor list for close tracking and monitoring of receivables.
3 Creditors and Accrued Expenses $647,094 Accrued Liabilities: SOP for timely recording of liabilities enhanced.
Accrual without Work Orders: New Works Order system introduced in 2012 to replace manual system. This will address cases of overstatement etc.
Temporary Receipts: $283,989 of $308,715 of unexplained receipts regularised. AHPETC will put in resources to clear remaining amount.

I will deal with these matters focusing on the disclaimers and issues that have the highest financial signature, in the spirit of full transparency and accountability to the residents of AHPETC and to Singaporeans. I will also provide some context that the public should be made aware of, acknowledge shortcomings, identify areas where systemic improvements will be or have already been made and where processes will continue to be enhanced.

First, Lift Upgrading Program and Lift Expenses

Mdm Speaker, FKT’s fifth disclaimer was on the HDB Lift Upgrading Program (LUP) or LUP and covered its inability to determine the accuracy of AHPETC’s lift upgrading expenses of about $18.6m. To provide some context to this point, the FMSS staff who previously worked in the old Hougang Town Council environment were not familiar with the nature of the billings to HDB for LUP works, as no lift upgrading was carried out in Hougang SMC in the past. Some LUP bills were passed on to FMSS from the previous Managing Agent under the PAP-run Aljunied Town Council. This matter was also brought up in parliament in 2012 by Ms Sylvia Lim. In particular, the TC was concerned about instances where it was billed one year in advance by HDB and certain bills were carried over from FY11 to FY12, amongst other matters.

Accordingly, the TC did not recognise LUP expenses in earlier years amounting to $8.38m as the TC disputed its share of the LUP expenses with HDB. In view of the very large numbers, one can understand why the TC took a cautious approach.

The AGO report has since confirmed that AHPETC has fully paid up the $18.61 million owed to the HDB in May 2013, and that this matter has been fully resolved.

Associated with this point is FKT’s fourth disclaimer which stated that lift repair expenses of about $1.6m were expenses that related to the previous financial year, and that the TC management did not ascertain the quantum of the prior year’s expenses, and that the expenditure had been overstated. The TC informed the AGO that some Works Order were not raised before 31 March 2012 for works performed in FY2011/12 due to a staff oversight explaining the incorrect recording of those expenses.

The AGO found that the actual amount of expenses relating to FY11/12 included in the FY12/13 audit was actually $63,902 and that the impact of this error, in the AGO’s words, was “not significant”. Nonetheless, AHPETC informed AGO that with the implementation of the Works Order System module on 1 April 2012 for non-routine works and 1 October 2012 for routine works, lift repair expenses would be accounted for in a timely manner going forward.

Point 2, Receivables from Various Stakeholders

The second disclaimer from FKT covered receivables from the Citizens’ Consultative Committee (CCC) – a carry over largely of CIPC funding process governed by MND to the previous PAP Aljunied Town Council. The other stakeholders in this disclaimer are the taxman and Sundry Debtors. The total amount in question under this heading is about $3.1m.

First, the CCC:

The AGO’s findings revealed that in fact, about $614,237 was due from the CCC while the remaining $563,622 were receivables from other parties such as tenants and lessees.

Separately, even though HDB had banked in about $388,887 into AHPETC’s bank account in June and September 2012, the TC was unable to match the receipts to the corresponding receivables. The TC would like to acknowledge the AGO’s efforts in unravelling this disclaimer and following up with the Ang Mo Kio Town Council which in the aftermath of the AGO’s audit and intervention, established that the reimbursement it received from HDB should have been originally made to AHPETC instead, by virtue of the boundary changes made on the occasion on the 2011 General Elections.

I will deal with the point made by the AGO that it was able to unravel the issue of the CCC receivables using documents given to it by AHPETC later in my speech, covering the handover and taking over of records between ATC and AHPETC and the management of records in general.

Secondly, on receivables from IRAS:

FKT noted in its FY12/13 audit report that it was not able to ascertain receivables amounting to $110,735. AHPETC acknowledges that these receivables were wrongly stated and it has duly reversed out these incorrectly stated receivables in May 2014.

Thirdly, on Sundry Debtors:

FKT noted in its FY12/13 audit report that it was not able to ascertain about $1.8m of receivables from sundry debtors. The AGO found out that the TC had incorrectly overstated about half of these receivables and that the TC should have been more industrious in recovering payments on a timely basis.

Madam Speaker, while I acknowledge this point, a bit of background would be helpful to contextualize this particular issue. When AHPETC up-scaled the Hougang Town Council’s computer system to replace the terminated system used by the former Aljunied Town Council, the Hougang system had a limited number of categories for TC operations. This system was set-up for the operation of a single-member ward of an opposition TC. The accounting for Government programs such as the Revitalisation of Shops (ROS), Neighbourhood Renewal Programme (NRP) and schemes involving Town Council collaborations with the NEA were new and in some cases, unheard of to the management of AHPETC. Like lift upgrading, many of these were not extended to the Hougang in the past. Separately, some invoices were the subject of disagreements with the HDB on co-payment for façade repair to HDB blocks and hence subject to follow up by the TC, resulting in them not being removed as receivables.

The TC has since informed AGO that it received payment from Sundry Debtors in the two financial years, after the FKT audit of FY12/13 amounting to $508,370 of which $483,134 was owed by the HDB.

Separately, the AGO report noted that about $376,316 remained outstanding to AHPETC from the HDB and NEA respectively, with some owed for more than two years.

The AGO’s findings also confirm that the NEA had overlooked eight invoices amounting to $11,673 owed to AHPETC. For two particular invoices not rejected by HDB and deemed to be in order, HDB informed the AGO that it was still reviewing claims amounting to $175,067 which it received in May and September 2012, almost two a half years from when they were presented to the HDB by AHPETC.

The above point notwithstanding, the TC has adopted a practice of management regularly churning out a list of debtors and appointing a finance staff to follow up with debtors by issuing reminders on the sums owed. This due diligence will have a positive knock-on effect ensuring that receivables owed are captured in the accounts to accurately reflect the transactions and state of affairs in AHPETC.

Point 3, Creditors and Accrued Expenses

According to FKT’s disclaimer, the total amount in question under this head comes up to $647,094. The first issue on accrued liabilities covers a claim by FKT that the TC did not have a Standard Operating Procedure (SOP) covering the timely recording of liabilities. I will deal with this first.

The AGO has taken a different position from FKT on this point to correctly report that the TC indeed had an SOP, with the qualification that this SOP does not stipulate a timeline for verification works done by Property Officers after job sheets were received to enable a timely issuance of Works Orders. I have since personally checked on the SOP with the Town Council’s Property Manager and confirmed that for the overwhelming number of accrued liabilities, the SOP now puts the time frame from job completion to issuance of payment take a maximum of three months.

Secondly, on Accruals without Work Orders:

FKT reported that the TC was unable to provide details covering some $338,379 in accrued expenses from the previous Aljunied Town Council. The TC explained that it was not able to provide the details required, as it did not have supporting documents. The AGO was able find out that some of these items were overstatements, as the TC did not reverse out the accrued expenses from its accounts. As explained earlier, the TC was hampered operating a GRC with a manual Works Order system. With the rollout of a new Works Order System in 2012, the TC is enhancing its SOPs to ensure that moving forward, an accurate reflection of the amounts due to external parties is established.

Thirdly, on Other Payables:

The AGO found poor monitoring and lack of due diligence by AHPETC in following up on items in a temporary clearing account which FKT noted came up $308,715. AHPETC has since cleared up many of these receipts, and will put in resources to clear up the remaining amount.

Madam Speaker, the TC accepts that proper management involving the handover of records from the previous management was something that on hindsight should have been better addressed. The reality at the time was that many staff who signed for Finance-related files from the previous MA after GE2011 resigned in 2011 and 2012. With this came the loss of a lot of institutional knowledge specific to documents pertaining to the handover period. Going forward, and in the interests of better corporate governance, the TC will monitor the management and handover of records more systematically. To that end, proper handover procedures for resigning staff prior to issuance of their final paycheck have already been implemented.

Oversight of Contracts & Tenders

Before concluding Madam Speaker, I wish to say a few words about Tenders and Contracts as I have been the Chairman of Tenders and Contracts Committee since 2012. In that context, it would also be appropriate for me to make some comments about the Managing Agent’s role in the decision-making process involving the calling of tenders and award of contracts in view of some media reports insinuating personal benefit for FMSS by virtue of being the Managing Agent of AHPETC.

Firstly, in a situation where FMSS is a tenderer in a tender called by the Town Council, as was the case in 2011 for the Managing Agent contract, FMSS is kept at an arm’s length and a China wall is built between FMSS and the Town Council.

What happens in such this case? The evaluation of the such a tender is done solely by the elected and appointed members of the Town Council, all of whom have no interest, pecuniary or otherwise in FMSS.

The decision-making to award the tender in such a case would also be the sole remit of the Tender and Contracts Committee. No staff member of the Managing Agent is privy to the evaluation or the decision-making process in this case. The Secretary of the Town Council, Mr Danny Loh and the General Manager, Ms How Weng Fan and are not involved in this process at all. In 2011, in view of operational exigencies, a decision was made with the concurrence of Town Councillors; and as detailed earlier, FMSS did not participate in the evaluation or recommendation of the tenderer in strict adherence with the Town Council Financial Rules.

This was the same scenario that played itself out in the late last year and early this year when the Town Councillors met to evaluate the specifications of the Managing Agent tender for FY2015 and beyond.

In a second scenario, where FMSS does not participate in the tenders called by the TC pertaining for example to conservancy, lift maintenance and horticultural contracts, FMSS’ role is purely administrative. FMSS is expected to thoroughly evaluate and assess the tenderers and recommend which tenderers meet the minimum requirements of the TC. At no point does FMSS make a decision on who to award the contract to. FMSS’ administrative role is purely to advise the Tenders and Contracts committee on the tenderers and their submissions. It is for the committee to deliberate and determine in the interests of the residents of the Town Council which tenderer the contract ought to be awarded to after considering all the relevant facts. Once again, no personal benefit is accrued to FMSS by virtue of these processes.

Conclusion

Madam Speaker, I have not covered all the points made by both the AGO and the PWC in their reports, but have focused on the big-sum items. This is in no way minifies or downplays the weight the TC places on areas where the amounts owing or owed, and for reconciliation or follow-up are lower or less significant.

The TC will strengthen its processes. And we will do it with the same vigour when we sought to ensure that resident’s lives would not be affected during the course of the post GE2011 handover. I would like to thank all the staff of the Town Council, past and present, for their efforts and service to the Town Council. I note that the AGO with a full-time team working for almost a year with upto12 personnel including those from PWC, did not suspect and flag out potential criminal wrongdoing on the part of any staff member of the Town Council. We will make full use of the AGO’s findings to boost our financial systems and processes. Thank you.

Written by singapore 2025

13/02/2015 at 7:18 am

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