Auditor-General's Report: Related parties not kept at arm's length by SP, ITE

Auditor-General's Report: Related parties not kept at arm's length by SP, ITE

Lapses were found in the relationships between Singapore Polytechnic and two of its subsidiaries. Similar weaknesses were identified at the Institute of Technical Education.

SINGAPORE: Two education bodies - the Institute of Technical Education and Singapore Polytechnic - were cited in the Auditor-General's Report for instances in which transactions with related parties "were not carried out at arm's length".

"In carrying out their functions, public sector entities may have dealings with parties that are related to them. For proper accountability, transactions with related parties should be carried out at arm's length, and funding and resources provided to the related parties should be clearly reflected," the Auditor-General's Office said in the report, released on Wednesday (Jul 15).

"There should not be any hidden subsidy, to maintain financial discipline and accountability."

SINGAPORE POLYTECHNIC

SP sub-leased a land parcel at nominal rent to a related party, and waived a substantial amount due from this party without carrying out proper evaluation, the AGO noted.

In October 2000, SP subleased a 7,189-square-metre land parcel for a nominal rental of S$12 a year to the Singapore Polytechnic Graduates' Guild. This land had been leased from the Land Office for 30 years for a premium of S$2.19 million.

But sub-leasing the land at a nominal rate "is not in line with the Government's instruction" that all premises be let out at market rates, stated the AGO, which called the transaction a "hidden subsidy".

The school also failed to recover a significant amount of costs - about S$1.23 million from Jan 1, 2010 to Dec 31, 2014 - for the secondment of its a senior officer on its staff to a subsidiary, Singapore Polytechnic International (SPI).

"SP did not carry out the transactions at arm's length and was effectively providing SPI a hidden subsidy. In addition, without a secondment agreement to specify the roles and responsibilities of both parties, there would not be clear accountability for each of the parties," the AGO said.

SP said it would seek legal advice and establish a secondment agreement by October this year.

INSTITUTE OF TECHNICAL EDUCATION

The AGO found lapses in transactions between ITE and its subsidiary, ITE Education Services (ITEES), which had been established to share ITE's expertise in technical and vocational education and training.

ITE did not obtain the requisite approval before leasing a 613-square-metre office space to ITEES, nor did it charge its subsidiary market rate for the lease, the AGO found. It charged a monthly licence fee of S$13 per square metre, about half the average market rate - which translates to ITE undercharging ITEES by about S$480,000 for the five-year licence period.

There were also "serious weaknesses" in the billing process for services ITE rendered to ITEES. In test-checks, 35 per cent of invoices showed underbilling, overbilling or late billing, the AGO said.

ITE said it has started a review of the Temporary Occupancy Licence terms and conditions issued to its subsidiary, and that it will rectify its billing processes.

In a statement on Thursday (Jul 16), ITE said that it "accepts the Auditor-General's observations".

"We have, and will take appropriate action to correct the lapses and close the gaps identified. These include further strengthening controls and mechanisms to ensure accountability and uphold the principles of transparency, fairness and open competition, and enhancing systems to mitigate risks in financial transaction," said the ITE spokesperson.

"One of AGO’s observations pertained to transactions between ITE and ITE Education Services Pte Ltd (ITEES). ITEES is a wholly owned subsidiary of ITE that was set up to facilitate the sharing of ITE’s expertise in Technical and Vocational Education and Training. ITE and ITEES have taken immediate actions to address AGO’s findings and ensure that all transactions between ITE and ITEES are recorded on an arm’s length basis," the spokesperson added.

Source: CNA/es