Contract and Payment Lapses Found in Auditor-General's Audits of People's Association for FY2020/2021

Mr Pritam Singh asked the Minister for Culture, Community and Youth with respect to the Report of the Auditor-General for FY2020/2021 (a) whether PA will undertake an extensive review, investigation or audit to ascertain the true extent of lapses in approvals found in more than 50% of PA's contract variations on a test-check basis; and (b) what is the facility referred to and who is the managing agent identified in paragraph 56 of the Report where out of 36 supporting documents for the project, 34 were suspected to have been falsified amongst other irregularities.

Ms Foo Mee Har asked the Minister for Culture, Community and Youth (a) what lessons are learnt from payment irregularities uncovered by the Auditor General's Office amounting to $1.17 million made by PA to two contractors; and (b) what control measures have been instituted to ensure such irregularities do not recur.

Mr Sitoh Yih Pin asked the Minister for Culture, Community and Youth (a) whether, arising from the sampling of 36 payments conducted by the AGO, PA will conduct a thorough investigation into all payments made in relation to the management of its facility maintenance contracts; (b) what is the total estimate of all such payments; and (c) whether and what steps PA intends to take to recover these irregular payments made.

Mr Sitoh Yih Pin asked the Minister for Culture, Community and Youth (a) whether PA’s internal audits have picked up on any of the lapses that have been raised by AGO; (b) if not, what are the reasons for the failure to do so; and (c) what is the scope and ambit of the external consultant in its review of PA's governance system and oversight functions in relation to contract management of all development projects.

Mr Speaker, for the Financial Year (FY) 2020/2021, the Auditor-General’s Office (AGO) audited two development projects which are under the charge of the People’s Association (PA), namely, Our Tampines Hub (OTH) and Heartbeat @ Bedok (HBB). The findings by AGO relate to these two projects.

I will address the questions from several Members of the House relating to three key findings by AGO. But before I go into the specific findings, let me provide some context and background to these projects.

Sir, PA's mission is to foster social cohesion. It does this through a wide range of programmes that cater to residents of different profiles and interests. Community facilities play an important part in terms of providing the infrastructure that supports us in bringing people together.

During times of crisis, in particular, these community nodes become critical points of support for our residents. For instance, in our fight against COVID-19, PA transformed its community clubs (CCs) and residents' committee (RC) centres into distribution networks. We were able to quickly give our residents much-needed masks, sanitisers, TraceTogether tokens, Antigen Rapid Test (ART) test kits and so on. Almost overnight, many CCs were also turned into Vaccination Centres, to support our nation-wide vaccination efforts.

Today, PA manages a total of 788 community facilities which vary in size and offerings. These range from the CCs and RC centres to specialist CCs such as PAssion WaVe and imPAct @ Hong Lim Green.

PA also regularly upgrades its community facilities. At any given point in time, about 50 of its facilities would be undergoing development or redevelopments. These include construction of new facilities, upgrading works, cyclical maintenance or minor building works.

In 2010, the Government embarked on plans to build integrated community hubs. The intention was to bring together Government services with community programming and other related businesses under one roof, to better and more conveniently serve residents.

For each of our integrated community hubs, PA took on the responsibility as the lead agency to undertake its development, working closely with various Government agencies, industry stakeholders and also, professionals.

In each of these two cases, external consultants such as quantity surveyors, architects, engineers, project managers and managing agents (MA) were engaged, to help advise on and manage the construction phase of the development and subsequently, upon its completion, the management and maintenance of the facility.

In 2017, OTH and HBB were completed. These two developments added to the stable of PA's facilities, which were useful to meet growing and varied community demands.

OTH is Singapore's largest integrated community and lifestyle hub. It offers more than 30 sporting, lifestyle, community, performing arts facilities and also, it is Singapore's first Integrated Public Service Centre. Residents have one-stop access to more than 450 Government services by 18 Government agencies.

HBB is Singapore's second community hub, located at Bedok Town Centre. Like OTH, HBB houses multiple agencies and facilities, including a polyclinic, senior care centre, ActiveSG sport centre, public library as well as food and beverage (F&B) and other retail outlets.

Sir, AGO's observations in FY2020/2021 are related to the construction and maintenance phases of OTH and HBB. Several Members have raised questions on the AGO findings and they relate to three broad buckets of issues as follows: first, the failure to adopt full price fluctuation adjustments, in the case of OTH's main construction contract; second, management and oversight of contract variations during the construction phase of OTH and HBB; and third, irregularities which arose during the operations and facilities maintenance phase at OTH. I will deal with all three.

Mr Pritam Singh asked about the adoption of full price fluctuation in relation to OTH's main construction contracts.

For all public construction developments with a contract value of more than $5 million, the Government requires agencies to adopt full price fluctuation adjustment for key construction materials, specifically, concrete and steel reinforcement. This is to encourage companies, the bidders, to put in a more realistic bid for public sector projects.

AGO observed that the full price fluctuation was not adopted in the case of OTH's main construction contract. Instead of a full price fluctuation adjustment, the parties in that case adopted a 70% price fluctuation adjustment for OTH’s main construction contract.

When PA did its investigations, it found that this had been discussed and proposed by PA's appointed team of external consultants and was then accepted by PA. However, this was a mistake as PA should have adopted full price fluctuation instead, in accordance with the Government’s instruction.

Following this finding, PA undertook a review of the 31 relevant public construction developments over the last seven years. It found that, in this period, two other construction projects had also erroneously adopted a 70% price fluctuation adjustment, instead of a full price fluctuation.

On these two construction projects, the preliminary calculation is that if a full price fluctuation had been adopted instead, this would have resulted in a price adjustment differential of about $60,000 in favour of PA.

PA has since ensured that the provision in all such similar standard construction contracts is clear and is fixed, to ensure greater clarity and compliance on how price fluctuation adjustments should be made, as per the requirement for all Government projects. It has also been reiterated to relevant officers who oversee such projects to ensure compliance.

Next, Sir, let me address AGO's findings on the management and oversight of contract variations. This applies for the main construction contracts during the development phase of both OTH and HBB.

In its audit, the AGO had test-checked 465 contract variations from both developments and found lapses in the approvals for 252 variations. The lapses relate to improper approval processes for variation works that had been conducted. The AGO found that there was a lack of evidence of approvals and in some cases, approvals which were given after the works had commenced or were already completed. And in some other cases, approvals for the increase in variation costs were not documented.

AGO opined that these lapses indicated weaknesses in the monitoring of contract variations and inadequate oversight of the consultants by PA.

Subsequent to AGO's findings, PA undertook a thorough check on all 252 cases flagged by AGO. The check showed that whilst there were inadequate or missing documentations in respect of those variation works identified by AGO, these variation works were in fact requested for and approved.

PA was able to independently verify, including through contemporaneous materials, that the variation works were carried out following discussions and decisions taken at project site meetings between PA and its consultants, and following the issuance of work orders. However, the project staff and consultants at that time, did not maintain proper documentation of these decisions, resulting in AGO’s observations. This is a lapse which has to be addressed.

In addition, PA is now undertaking a full review of the remaining contract variations, beyond those sampled by AGO, for the main construction contracts for these two developments.

Whilst these were not part of AGO’s test check requirements, PA is doing so, to ensure that the contract variations were carried out with the appropriate approvals and proper documentation, and if not, then to take the appropriate remedial actions.

To further improve the future management of contract variations, PA has since also implemented the following: one, required the reporting and monitoring of contract variations in project progress meetings as a standard form; two, published a manual on contract variation process and procedures to further guide PA staff and its external consultants in the management of contract variations; and three, established an e-filing system for documenting variation approvals to enhance oversight and tracking.

Sir, the third observation by AGO is in relation to the possible irregularities in documents relating to payments and lapses in the management of facility maintenance contracts at OTH. Mr Pritam Singh, Ms Foo Mee Har and Mr Sitoh Yih Pin have raised questions with regard to this observation.

AGO's findings under this heading relate to transactions carried out in conjunction with minor building works at the facility, undertaken by external contractors during the maintenance phase of OTH. In respect to these works, PA had engaged an external managing agent to support the onsite facilities management team and also, supervise the works by the contractors.

In reviewing the payments made to the contractors, AGO had sampled 36 payments, totalling $1.27 million and found that there were possible irregularities in the supporting documents. These irregularities include the possible falsification of quotations, alteration of hard copy payments, payment supporting documents and also the creation and backdating of documents to give the false impression that proper processes had been followed.

When PA was notified by AGO on the irregularities observed, an internal investigation panel was immediately convened to look into these transactions. This panel was led by senior officers from PA and the Ministry of Culture, Community and Youth to conduct a thorough review of the related processes.

The investigations confirmed AGO's observations. PA took a very serious view of these irregularities. In addition, as the findings relate to claims involving possible falsification of documents, including in relation to claims by external parties, PA lodged a Police report after the conclusion of this investigation.

In addition, the staff who were directly involved have also been suspended pending the outcome of these investigations. PA is presently reviewing each of these transactions to ascertain if any losses have been occasioned by these irregularities and if so, to take the appropriate recovery action.

In the meantime, to ensure that the operations and maintenance of facilities at OTH carries on without disruption, PA has set up a task force to review and take steps to strengthen existing processes in procurement, contract and facility management, all of which, carry on at OTH. Second, to also improve staffing resources, including the appropriate oversight of contractors and managing agents.

Mr Sitoh Yih Pin has asked if PA will conduct a thorough investigation into all payments made in relation to OTH's facility maintenance contracts. I would like to assure Members of this House that PA has done so. The internal audit team has since undertaken a sample review of all the other facility maintenance contracts entered into by OTH and did not find any irregularities similar in nature as those flagged by AGO.

Mr Sitoh also asked whether PA's internal audit team had picked up any of these lapses raised by AGO. The internal audit team identifies key compliance risk areas and conducts sample checks to detect lapses or non-compliance.

In addition to compliance and operational audits, PA also engages an external auditor to conduct annual audits on its financial information. The integrated community hubs that I have mentioned, are audited regularly on a cyclical basis. PA last audited OTH and HBB in 2018 and 2019 respectively. At that time, these developments had just started their operations and the audits then were focused on procurement, revenue and tenancy management. PA's internal audit did not uncover any significant discrepancies, nor did AGO highlight any issues with respect to these three areas.

In February 2020, PA's internal audit had included in their FY2021 workplan to conduct checks on OTH and HBB. The checks were to be focused on the facilities' development and maintenance relating to progress claims, documentation and term contracts. These plans were, however, put on hold when AGO began its audit of OTH and HBB in July 2020. The planned areas of audit for OTH in FY2021 were eventually covered under AGO's audit that was conducted in FY2020.

Sir, PA accepts AGO's findings and will take steps to thoroughly review its governance and compliance systems. Ms Foo, in particular, asked about the control measures. Besides the above, PA has since appointed an external consultant from a leading accounting firm to examine its governance system and oversight functions in relation to contract management and the operations of all its development projects.

The external consultant will conduct an audit and Business Process Review on the contract management of development and facility management projects of PA in recent years; review the governance structure for similar integrated community complexes; and also provide recommendations to strengthen systems and also processes in relation to the oversight functions of all development projects.

The external consultant will have a broad mandate to review. They will make practical recommendations to rectify control weakness or lapses noted as well as identify areas of improvement in terms of efficiency, economy and effectiveness. PA will take in the recommendations, improve processes where needed and implement better oversight.

Sir, as a steward of public funds, we know that there must be public confidence in the integrity of governance systems. And PA takes the findings of AGO very seriously. This is underscored by how immediate steps were taken to review the observations, going beyond AGO's findings and subsequently, the remedial steps that I outlined earlier.

PA is committed to resolving and improving its governance and oversight processes and will take all the appropriate steps to learn from and improve on the AGO audit findings.