SINGAPORE: The former managing agent of Aljunied-Hougang-Punggol East Town Council (AHPETC) FM Solutions and Services (FMSS) has been "grossly profiteering" off the town council which is its sole client, the Ministry of National Development (MND) found.
MND said the Accounting and Corporate Regulatory Authority (ACRA) conducted an ad-hoc review of FMSS' auditor, Teo Liang Chye and Co. In FY 2013/2014, while AHPETC suffered an operating deficit of S$2 million, FMSS made a net after-tax profit of S$2 million, after paying its directors and shareholders fees and salaries amounting to S$1.14 million, MND said in a statement on Saturday (Aug 29).
FMSS was managing agent (MA) for the Workers' Party-run AHPETC from July 15, 2011 to July 14, 2015. In AHPETC’s FY2013/2014 financial statements and reports, its independent auditor, Audit Alliance LLP, found that AHPETC’s deputy general manager, who was also a shareholder and director of FMSS, certified invoices received from FMSS totalling S$2.1 million on behalf of the town council, and subsequently also approved the related payment vouchers by the TC to FMSS, with no segregation of duties, the ministry said.
"This reinforced MND’s concerns about the TC’s state of financial management, and in particular, whether payments made by the TC to FMSS were valid and proper," it added. ACRA started a practice monitoring review on FMSS' auditor and submitted its findings to MND on Aug 27.
On examining the accounts, MND said it found:
FMSS made a profit after tax of S$510,904. This was after FMSS paid its three owners/directors, fees and salaries of S$702,295, and consultancy and secretarial fees of S$300,000 .
Total payments to the three FMSS Owners/Directors for FY2012/2013 amounted to S$1,513,199.
FMSS made a profit after tax of S$2,035,784. This was after FMSS paid its four owners/directors fees and salaries of S$839,696, and consultancy and secretarial fees of S$300,000 .
Total payments to the four FMSS owners/directors for FY2013/2014 amounted to S$3,175,480.
Between FY2012/2013 and FY2013/2014
While FMSS’ revenue increased by 30 per cent in one year, from S$6,740,572 to S$8,773,429, its profit after tax rose 300 per cent, from S$510,904 to S$2,035,784.
Total payments by AHPETC to FMSS owners and directors amounted to 22 per cent of FMSS’ revenue in FY12/13. It grew further to 36 per cent in FY2013/2014. "Such levels of profit margin are abnormal," said MND. "As AHPETC was FMSS’ only client, these findings support MND’s earlier concern that the TC had overpaid FMSS excessively."
Additionally, MND noted that AHPETC had an operating deficit of S$1.5 million in FY2012/2013, and a further deficit of S$2 million in FY2013/2014. "Had the TC not overpaid FMSS, it might well have had been able to break-even," MND said.
The ministry has written to Ms Sylvia Lim, the immediate-past chairman of AHPETC "to ask if she was aware of the extent of profiteering in FMSS, and if so since when had she known, and what she had done about it". MND has also asked Ms Lim if she has examined past transactions of the town council with FMSS, and how she intends to recover the monies lost due to any overpayment.
"As FMSS was paid using Service & Conservancy Charges (S&CC) collections from residents and S&CC operating grants from MND, public monies are at stake," the ministry said. "What happened between the town council and FMSS is not a private matter, but one which MND needs to look into. MND is therefore making a public statement on this matter of public interest, which underscores why MND has applied to the Court to appoint independent accountants."
MND is appealing against a High Court decision after it rejected MND's application to have independent accountants appointed to oversee Government grants to AHPETC.
Law and Foreign Affairs Minister K Shanmugam said FMSS made "huge profits" from AHPETC. Speaking to the reporters on the sidelines of an event at Sree Narayana Mission Home, he said the town council did not provide this information to auditors and the Auditor-General's Office.
"They refuse to give information on related-party transactions, on transactions with FMSS. It's obvious overcharging. They were asked in Parliament if they were going to recover this money. And they said 'No, everything was above board'. They will not recover (the money), because it was all fair. And they justified the payments without disclosing the details."
WP APPALLED BY MND'S "SERIES OF CARELESS ACCUSATIONS"
In response Ms Lim wrote to a senior director in MND on Saturday. In a letter shared on the Workers' Party (WP) website, she stated: "We are appalled at the series of careless accusations made by your ministry against Aljunied Hougang Punggol East Town Council (AHPETC). It is shocking that despite our clarifications on your allegations relating to lost monies and overpayment, your ministry continues to make spurious statements to distract the public and aimed at politically discrediting AHPETC."
Ms Lim, who is chairman of WP, said FMSS was appointed managing agent for AHPETC through a public tender and won a contract to provide Essential Maintenance Services Unit services through an open tender. "Payments made by AHPETC to FMSS were made pursuant to these contracts. Payment in accordance with contracts cannot be overpayment," she wrote.
"We wish to highlight that arrangements between FMSS and its employees are entirely commercial and not within the control of AHPETC," she added. "I am not aware of the matters you have highlighted therein, as AHPETC does not ask its contractors about their profitability or internal arrangements. We emphasise that AHPETC has ensured that payments made to FMSS are in line with and within the budget provided under the tender awarded.
"It is also ambiguous as to what the ministry means by an 'abnormal' profit margin, when it is not clear what the other MAs’ levels of profit are in other town councils."
"It is unfortunate that the political environment has put non-PAP town councils at a financial disadvantage due to the lack of competitive bidders. Your ministry ought to recognise the existence of an imbalanced system and take into consideration the political reality of the situation," Ms Lim countered.
"We also question your ministry’s political motivation for issuing a public release on this matter at such a premature stage, when you say that your ministry has not even completed a review of the findings by ACRA."
AHPETC currently has no managing agent, after no one came forth to submit a bid.