SINGAPORE: The Aljunied-Hougang Town Council (AHTC) needs to take "immediate steps" to "reset its tone" from the top, strengthen its control environment, improve oversight of its financial management function and address the "pervasive" control failures noted by accounting firm KPMG, the Housing and Development Board (HDB) said in a statement on Thursday (Jul 21).
HDB made its comments in response to KPMG's fourth monthly report uncovering lapses in its audit of the town council. The report was made public by AHTC late on Wednesday night.
In its report, KPMG said AHTC would need "at least 18 months" to fix lapses uncovered by the firm. It also stated that it found a further 70 control failures within the town council, in addition to the 115 control failures earlier identified by the Auditor-General's Office.
In response, HDB said it noted with "grave concern" KPMG's findings, and that progress in remedying AHTC's control failures has been slow.
KPMG's report also showed that AHTC's management philosophy and operating style led to issues with its budget tracking and financial reporting.
"As large sums of public monies are at stake, AHTC also needs to account to its residents and the public whether any monies have been lost as a result of these lapses," HDB said.
"HDB notes that, as required by the Court of Appeal, KPMG is reviewing whether any past payments made by the town council were improper and ought to be recovered, and will be communicating directly with Pasir Ris-Punggol Town Council's (PRPTC) accountant on the review. We look forward to AHTC’s fullest cooperation in this review," HDB added.
PRPTC apointed PricewaterhouseCoopers (PwC) to ensure that the accounts of its Punggol East division were in order, following the transfer of the ward when the People's Action Party won the seat back from the Workers' Party in the 2015 General Election.
CONTROL FAILURES ACROSS "KEY AREAS": KPMG
In its July report, KPMG said it uncovered "pervasive" control failures, "cutting across the key areas of governance, financial control, financial reporting, procurement and records management over the course of five years. It added that the control failures show "a failure in the control environment".
An organisation's control environment is the "foundation for all other components of internal control, providing discipline and structure", the accounting firm said.
In its assessment, KPMG found that AHTC's control environment failed in six areas - communication and enforcement of integrity and ethical values; commitment to competence; participation by Town Councillors; management philosophy and operating style; assignment of authority and responsibility; as well as human resource policies and practices.
ISSUES WITH COMPLIANCE, COMPETENCE
Among its findings, KPMG said a culture of compliance was not clearly communicated to its staff members. Until Jul 8 this year, the town council did not have a code of conduct or related documentation setting out its expectations of its staff. An example would be the town council's Work Order System, which has a control to "prevent work that exceeds the gazetted budget for the year from being processed".
"This was bypassed on several occasions, mainly for lift-related work, so that expenses that fell outside of the relevant sub-head of the gazetted budget could be processed," KPMG said, adding that while Town Councillors did not appear to have known of this circumvention, they must communicate that "a culture of compliance with controls designed to protect AHTC is required and bypassing of such controls is unacceptable".
KPMG also found a lack of commitment to competence, it said, citing "fundamental errors in the approach to preparing AHTC's GST returns". It also said monthly closing, checking and reconciliation procedures, and clearing of temporary accounts were not carried out until the accounting firm started its assignment.
There were invoices from vendors being recorded twice, resulting in overstatement of liabilities, KPMG said. It added: "The Service and Conservancy Charges ('S&CC') arrears report remains incorrectly generated, resulting in an over-declaration of S&CC arrears in the March 2016 report of S$273,535.06."
KPMG highlighted that the reconfiguration of the accounting system used by AHTC to record and account for its transactions was carried out in May 2016 "without detailed user acceptance testing or creation of program change documentation".
"These are standard quality checks on IT program changes. Omitting them jeopardises the accuracy of the accounting system," KPMG said.
ISSUES WITH MANAGEMENT, OPERATING STYLE
The report also brought up issues with AHTC's management philosophy and operating style, in its budget tracking and financial reporting. KPMG found that AHTC had 18 temporary clearing accounts containing more than one million transactions at a value of more than S$648,000, and prior to its review, investigation and clearance of the items - some pre-dating 2011 - were not carried out.
Additionally, the "extensive use of manual journal entries that bypassed accounts payable" were used to record payments totalling S$60,660,927 to third parties. "This highly irregular shortcut makes effective oversight of payments by the finance department practically impossible. Such large-scale use of this practice raises questions about the management of AHTC’s finance function," KPMG said.
As of Jun 30, the total value of transactions using a dummy code was S$271,598, KPMG had noted. "Payments initiated through dummy codes would not necessarily update payee records in the Accounting System, making effective oversight of third party payments by the Finance Department much more difficult. It is easier for duplicate payments or fictitious payments to be made without being detected," HDB stated.
KPMG also pointed out that AHTC did not have written human resource policies or policies for the handing over of duties and records prior to its review. In its April 2016 report, KPMG stated that that the town council had no finance manager, and of the 15 finance department staff hired since July 2015, four had resigned. Since then, another of AHTC's accountants has resigned on short notice.
"AHTC informs us that, since early 2015, it has shortlisted and interviewed potential finance manager candidates but without success; currently two deputy finance managers head the finance department," KPMG said, adding that after their review started, a staff exit clearance form was introduced in Apr 1, 2016, and a draft exit management policy came in on Jun 30 this year.
KPMG recommended a "reset" of tone from the top of the town council to fix the lapses outlined.
RECOMMENDATIONS ACCEPTED "IN FULL": AHTC
In a media release on Wednesday night, AHTC Chairman Pritam Singh said the town council "accepts all the recommendations in full", and stated that the town council would award the contract for a new Town Council Accounting System "shortly".
"The AHTC Members of Parliament will immediately lead an exercise to review the key areas of governance, financial control, financial reporting, procurement and records management," Mr Singh wrote.
While AHTC did not state how long it would take to fix the lapses in its media release, KPMG's report said AHTC has informed them it aims to "substantially complete the Remediation Plans in 15 months". It also laid out a plan to improve governance and oversight within the organisation.