KPMG notes 'serious flaws' in AHTC's governance

KPMG notes 'serious flaws' in AHTC's governance

One example raised in the 2011-2015 review showed payments with aggregated financial value of S$23,299,483 involving approvals by people who, in effect, paid themselves with these payment vouchers.

SINGAPORE: Auditor KPMG said that there were "serious flaws" in Aljunied-Hougang Town Council's (AHTC) governance, as well as improper payments amounting to millions of dollars to third parties, in its October report that focused on the town council's payment transactions from May 2011 to November 2015.

Some of these improprieties, if committed deliberately, "could amount to criminal conduct", it added.

In its report, KPMG highlighted in detail the relationship between the then-Aljunied-Hougang-Punggol East Town Council (AHPETC) and former managing agent FM Solutions and Services (FMSS) and Essential Maintenance Service Unit (EMSU) contractor FM Solutions and Integrated Services (FMSI).

The Workers' Party-held town council was renamed AHTC after losing its single-ward Punggol East seat to the ruling People's Action Party in the 2015 General Election.

RELATIONSHIP BETWEEN AHPETC, FMSS AND FMSI

The auditors said the town council was exposed to "serious conflicts of interest, as the direct owners of FMSS and FMSI (with a profit motive) concurrently held key management and financial control positions in the town council (charged with a service motive)".

For example, six shareholders of FMSS also held various positions in the town council, including the posts of finance manager and general manager.

KPMG said this meant that they were effectively "in a position to approve payments to themselves at critical stages of the process without meaningful independent oversight".

AHTC conflicts of interest table

Contrasting this with previous managing agents, KPMG noted that those approving payments for the town councils were not beneficiaries engaging in a profit-motivated transaction with the town council.

In this environment of "pervasive control failures, including a lack of discipline in the town council's operations and record-keeping", KPMG said this exposed public funds to risks of erroneous payments, overpayments, payments for which services had not been sufficiently verified and payments without proper authority, as well as the potential for actual misappropriation and civil or criminal breach of trust.

For instance, between Jul 15, 2011, and Jul 14, 2015, thetown council members in conflict of interest approved 132 payment vouchers and 74 work orders on behalf of AHPETC in respect of FMSS' invoices, KPMG noted.

In terms of monetary value, the payment vouchers amounted to S$23,299,483, it said, adding that the remaining S$10 million of the approximately S$33 million invoiced to FMSS or FMSI had no payment voucher or work order, or was approved by other individuals.

The accounting firm also characterised the tendering out of contracts, particularly the tender process for FMSS to be the town council's managing agent, as "deficient".

It said the tender process for FMSS' initial appointment was "waived without proper justification". For the second contract, the town council failed to try and secure competitive rates and address the serious conflicts of interest in the company and AHPETC.

The two contracts were worth S$5.4 million and S$23.2 million respectively, and the shortcomings in both appointments "potentially caused the town council to incur, directly and indirectly, significant additional costs", KPMG said.

The failed control environment ought not to have been permitted by AHTC, said KPMG, given that town councillors "hold fiduciary duties and responsibilities in respect of public funds entrusted to the town council". As such, the town councillors "bear a personal and collective responsibility for improper payments enabled or permitted by such a flawed system".

AMOUNT TO BE RECOVERED

As part of the report, KPMG also recommended the amounts that ought to be recovered from improper payments to FMSS and FMSI.

Among the table of improper payments, the auditor said S$608,911 should be recovered on project management fees paid to FMSS, as this was actually covered by managing agent fees already paid.

Another S$893,665 in payments were "not determinable" due to various reasons, according to KPMG.

Snapshot of conflicts of interest, improper payments at AHTC, singled out by KPMG

The auditor also noted that while its scope was not focused on identifying potential criminal acts arising from the issues it observed, they have been advised that the shortcomings in improper payments to FMSS and FMSI, if committed deliberately, "could amount to criminal conduct".

IMPROPER PAYMENTS TO THIRD PARTIES

The auditor also highlighted that improper payments were made by AHPETC to suppliers, consultants and contractors.

For instance, it had engaged a higher-priced consultant without calling for a tender for seven projects and with no reasonable justification recorded. This resulted in additional cost of S$2,794,560 to the town council that would have been avoided had the lower-priced consultant been selected, KPMG said.

Additionally, payments were made to third parties in the absence of adequate supporting documentation for the work and services provided, worth approximately S$44,000, and payments that were improperly made as a result of weaknesses in the payment approval process amounting to about S$106,000.

The latest report is to fulfil one of the terms of reference set out by the Court of Appeal to establish whether any past payments made by AHPETC were improper and ought to be recovered. The court also said KPMG’s monthly report is to address the outstanding non-compliances, the steps that must be taken to remedy such non-compliances and the progress of AHTC in implementing the remedial action.

In a statement issued on Tuesday evening, AHTC said it is studying the report in detail.

It said it noted KPMG’s broad definition of improper payment includes payments which are in breach of the town council’s internal control procedures and policies. "KPMG acknowledged that while some payments were deemed to be made improperly, they do not appear to have an effect on the legitimacy of the underlying payments, hence, may not necessarily be recoverable," it stated.

The Housing and Development Board said it has received the auditor's report and is studying it with the Ministry of National Development. They will provide a response in due course.

Source: CNA/kk

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