Safeguarding Public Monies Given to Town Councils

Mdm Speaker, the Ministry of National Development (MND) is deeply concerned with what KPMG had uncovered about the state of financial controls and systems in Aljunied-Hougang Town Council, or AHTC.

In its July 2016 report, KPMG reported a total of 185 control failures in AHTC. This comprises 115 identified by AHTC's statutory auditors and the Auditor-General's Office (AGO) in previous audits, and an additional 70 control failures uncovered by KPMG. KPMG concluded that AHTC's control failures were "pervasive, cutting across the key areas of governance, financial control, financial reporting, procurement and records management over the course of five years".

To recap, AHTC had received qualified financial statements from its own independent auditors for four consecutive financial years (FYs) since FY2011. AHTC's auditors were unable to determine the accuracy of the Town Council's various balances, expenses and receivables, including those relating to their service and conservancy charges (S&CC). There were also other audit observations, including late Sinking Fund transfers, incorrect usage of Sinking Funds, as well as inadequate disclosure and segregation of duties over related party transactions.

When AGO undertook a special audit on the Town Council in 2014, it similarly found lapses in the Town Council's management of Sinking Funds, governance of related party transactions, management of S&CC arrears, internal controls and procurement, as well as inadequacies in their record management and accounting system.

When AGO's report was debated in Parliament in February last year, the Town Council's then-Chairman and her fellow Town Councillors assured us that they had "already taken concrete steps to address and remedy many of the issues".

More than a year has passed but the Town Council appears to have made little progress. KPMG had noted in its July 2016 report that only a few of the remediation steps that AHTC had said they would do had been completed. While AHTC had indicated that they aimed to complete the remediation works in 15 months, that is, starting from July 2016, KPMG estimates that at the current rate of progress, the remediation process will take at least 18 months.

Instead of completing the remediation plans expeditiously, what we have seen from the Town Council in this past one and a half years is a series of actions that have only slowed down, prolonged and frustrated the whole process.

First, the Town Council attempted to avoid having one of the Big Four firms appointed as its independent accountant.

The Town Council also rejected the joint appointment of accountant with Pasir Ris-Punggol Town Council (PRPTC) to review AHTC's past payments in relation to Punggol East (PE), and when PRPTC appointed its own accountant, the Town Council refused to grant access to documents or to attend the coordination meetings called by the Housing and Development Board (HDB) with all parties to try to resolve the impasse. This pattern of behaviour is all the more worrying when set against what KPMG had stated in its July 2016 report, that the remediation of the control failures will require that the Town Councillors engage to "reset the tone at the top of AHTC, emphasising competence and accountability".

Apart from AHTC's slow progress in remedying the control failures, MND is also concerned with various systemic control failures that KPMG's latest report has highlighted, including:

First, the extensive use of manual journal entries that bypassed AHTC's accounts payable module, for payments totalling more than $60 million. KPMG has flagged this as "highly irregular" and "makes effective oversight of payments by the Finance Department practically impossible".

Second, temporary clearing accounts which were not investigated or cleared, containing transactions amounting to over $648,000 in total.

Third, the use of dummy codes which might not update payee records in the Accounting System, for transactions amounting to over $270,000 in total.

These control failures continue to paint a serious state of affairs in AHTC and are a cause for concern. KPMG noted that these control failures could conceal duplicate, fictitious or fraudulent payments, which could have been made without being detected.

As ordered by the Court of Appeal, KPMG is currently reviewing the past payments made by the Town Council to ascertain whether any were improperly made and, therefore, ought to be recovered. The findings are due on 31 August 2016, the end of this month.

MND asked AHTC to cooperate fully with the accountants to carry out a thorough and robust review of the past payments. The matter has dragged on for many years, with multiple Court hearings and not much actual progress made. For four FYs consecutively, AHTC has not had accounts that passed accountants' muster. This is accurately summed up by the Auditor-General in his report that "there was no assurance that the accounts are accurate or reliable, or that public funds had been properly spent, accounted for or managed".

Residents of Aljunied, Hougang and also Punggol East need to be assured as to whether or not there were any improper past payments that ought to be recovered. The Singaporean public also needs to know as public monies and grants are at stake.

MND and HDB will be studying the accountants' subsequent findings carefully and will take the necessary and appropriate actions to ensure that residents' interests are safeguarded and that any improper past payments are duly recovered.

Mdm Speaker, supplementary questions. The Minister for National Development had said that MND will be reviewing the Town Councils Act. Can the Senior Minister of State tell us when this review will be completed and if MND would consider including it in the Act penalties for wilful acts of concealment or non-cooperation with MND, HDB or other agencies which result in MND, HDB or other agencies being unable to detect or assess financial transactions which may be of public interest, or of non-compliance with the Act?

Will the Minister also consider including in the Town Councils Act provisions to enable MND, HDB or other agencies to compel Town Councils and their contractors to provide records in the event of non-cooperation by Town Councils or their agents in connection with investigations into the affairs of Town Councils?

Madam, I thank the Member for his questions. The Town Councils Act review is ongoing and we aim to complete the review by the year. As the then Minister for National Development Mr Khaw Boon Wan had articulated, I believe at the opening of the Parliamentary debate of the Auditor-General's report, he said that the Town Council Act review ought to focus on three areas, principally: first, it would make clear that Town Councils are subordinate to and must comply with public authorities charged with public duties; second, to strengthen the Town Councils' corporate governance and financial accountability framework; and third, to strengthen MND's regulatory oversight and the powers to obtain information and conduct investigations, as well as to look at the overall penalty framework. In that sense, we will look at the Member's suggestions in the course of this review. I think I have addressed the Member's questions.

Given that MND is doing a review of the Town Councils Act, would MND consider setting a reasonable timeframe and deadline for the preparation and submission of audited financial statements or distribution of assets and liabilities after each political boundary change?

Mdm Speaker, this is an area that we will look at in the course of the Town Councils Act review. In particular, we will further look at the handover process. We understand that when boundaries change, especially across political lines, delays in submission of accounts and documents may impact the financial audits of the receiving Town Council. This is certainly something that we need to look at in the course of this review.

Can the Senior Minister of State confirm if the joint appointment of accountants was required by the Court of Appeals in CA114 of 2015, or HDB had included it as a prayer to the Court of Appeal at any point in time?

Madam, the Court of Appeal order was against the Aljunied-Hougang-Punggol East Town Council (AHPETC), as the Member would be aware, along with the former Chairman because they were involved in the proceedings. This AHPETC no longer exists in its previous form as a legal entity. Instead, because of the intervening General Elections, Punggol East was carved out and handed over to PRPTC and became part of that entity.

So, based on the Town Council's declaration order, we are advised that this means that all the rights, obligations and liabilities of Punggol East then flow on to its successor organisation. In that sense, the accounts that relate to AHPETC are in relation to what would now be AHTC, which is one successor, and PRPTC, which is the other successor in respect of the Punggol East portion. So, that makes sense. The orders then need to be applied to all the entities for which the issues of AGO and all the Foo Kon Tan reports, and, indeed, the nub of the discussion in Parliament, they all relate to the former AHPETC. In that sense, both were required to comply with the Court order, which was initially at AHPETC.

We are given to understand that PRPTC wanted to discuss the issue of appointment because they wanted to have some coordination and efficiency because, essentially, they are looking not just at PE or AHTC but looking at the whole previous entity and how they inter-relate. I think that makes sense. We are also given to understand that there was an attempt to then appoint a joint accountant but without success.

In order to assist in Members' understanding of the question that the Member asked, allow me to take this House and Members through what we understand had happened. Following the Court of Appeal judgment, the Attorney-General's Chambers (AGC), on behalf of HDB, had written to AHTC and PRPTC on 4 December 2015. AGC had highlighted the importance of appointing accountants that could competently execute the duties envisaged by the Court of Appeal's orders, given the complexity of the work entailed. HDB suggested that the accountant be from the Big Four accounting firms. And to avoid duplication of effort, competing access to documents and incurring of costs, HDB also asked both Town Councils to consider making a joint appointment of accountants. And that is the genesis of the Member's question.

On 4 December 2015, AHTC, however, nominated Business Assurance, while PRPTC sought to jointly appoint PricewaterhouseCoopers (PwC) with AHTC on 15 December 2015. When asked to reconsider its nomination, AHTC had applied to the Court of Appeal for directions on the issue of appointment. AHTC also did not respond to HDB's subsequent queries on Business Assurance's experience and expertise, for example, their years of experience in the relevant areas of audit and the latest Practice Monitoring Programme (PMP) inspection results.

The Court of Appeal later directed AHTC to file an affidavit to respond to HDB's queries by 11 January 2016. On the day of the deadline, AHTC had filed the response but instead of answering HDB's questions on Business Assurance's experience and competence, AHTC said that Business Assurance had withdrawn due to "intense media scrutiny", that since Business Assurance had withdrawn, it was no longer necessary to provide the information on Business Assurance and that the Town Council had nominated a new firm, MRI Moores Rowland, instead.

On the night of 19 January 2016, the night before the next Court of Appeal hearing, AHTC wrote to the Court to state that MRI Moores Rowland had also withdrawn on 17 January 2016. So, this was 19 January; the date they had withdrawn was on 17 January. But no reasons were given. The latest development was also not mentioned in AHTC's two affidavits by the Chairman, I believe, on 18 January 2016. At the Court of Appeal hearing on 20 January 2016, it emerged that Business Assurance withdrew because it did not want to reveal its PMP inspection findings. This led the Court of Appeal to raise concerns about whether the Court had been apprised of all the facts in a candid and forthright manner and whether the Town Council had in place a system to ensure due diligence in selecting candidates to do this work.

The Court of Appeal eventually heard evidence on 22 January 2016 that both of AHTC's nominated firms of accountants each had a member who had failed ACRA's PMP inspection.

Agreeing that AHTC's nomination approach suggested a lack of rigour and basic due diligence, the Court of Appeal then directed AHTC to appoint one of the Big Four firms as the matter was of public interest and involved public funds.

That is where I come from, as background, to the response to the Member's question. On 1 March 2016, AHTC then announced that they have appointed KPMG LLP with HDB's consent ‒ HDB consented because it is one of the Big Four ‒ to perform the task ordered by the Court of Appeal.

After KPMG's appointment was announced by AHTC, PRPTC informed HDB on 3 March 2016 that it wished to appoint KPMG jointly with AHTC, but later updated HDB that AHTC was not agreeable. It was in this context that HDB agreed to PRPTC's appointment of a different set of accountants, namely, PwC to carry out its Court of Appeal orders. To ensure that the reviews were carried out efficiently and effectively, HDB invited both Town Councils and both sets of auditors to a meeting in June to discuss the implementation details, such as scope and timeline, but AHTC twice declined to attend as it did not agree that PRPTC was bound by the Court of Appeal order, precisely what the Member has asked earlier in relation to PE. AHTC also did not give PRPTC access to the documents of PE and requested that HDB seek clarification from the Court of Appeal first.

On 8 July 2016, the Court of Appeal ruled that PRPTC, on behalf of Punggol East, had an interest in the outcome of the work carried out by KPMG and because the issue of joint appointment, as the Member had alluded to, was already moot by then, the Court of Appeal directed that the two accountants communicate directly with each other to provide each other access as may reasonably be required to safeguard each other's interests.

Madam, if I could make some clarifications on what the Senior Minister of State has just said and also ask him a few supplementary questions.

The first clarification to make is that the Senior Minister of State mentioned in his answer earlier that AHTC had been reluctant to appoint a Big Four firm but, based on his answer, I think he will confirm that the requirement to appoint a Big Four firm was only clarified in January this year when the Court of Appeal subsequently explained further its view on the matter, on which accounting firm it felt was suitable.

Secondly, the issue of whether PRPTC is required to comply with the judgment, I think the Senior Minister of State would be aware that at the recent hearing, the Court of Appeal declined to answer that question and, in fact, we are going to Court again this Thursday for some further clarification. So, that matter is really in one sense, in a way, sub judice as well. And at the last hearing, PRPTC did not attend, so we were not able to move further on that matter.

Next, I would just like to clarify also Mr Charles Chong's question to the Senior Minister of State. I am not sure whether Mr Charles Chong is accusing AHTC of wilful concealment of any documents. If he is, we utterly reject that.

A further supplementary question for the Senior Minister of State: I understand that the Ministry annually requires Town Councils to submit not just their financial statements but also their management letters issued by the auditors to each Town Council. We appreciate all this attention on us and how bad we are. But in order for us to get a proper perspective, is MND saying that the auditors of the other Town Councils have not picked up control failures in the other Town Councils since MND is receiving these annual management letters as the regulatory Ministry? Certainly, would —

Yes. Two more questions, Madam.

Secondly, would MND be prepared to share the findings regarding the other Town Councils with us or with the public so that we can better benchmark ourselves and perhaps adopt some of the best practices that may be available in the other Town Councils?

Last of all, Madam, it was interesting to me that when KPMG issued their first report in April 2016, and shortly after that in May, the Senior Minister of State himself actually sent a circular to all Town Council Chairmen attaching some slides and saying that Town Councils might want to use these slides to brief their Town Councillors on their roles and responsibilities, especially the key committees involved in finance and governance. This email came out of the blue. I have not seen such an email for the years that I had been —

So, I would like to ask the Senior Minister of State whether this email was actually prompted by the KPMG report and a concern by the Ministry that perhaps other Town Councils also need to get themselves better organised.

I thank the Member for her questions. On the second question, the email which sent some slides, basically, it flows from the concerns that have arisen with regard to the AHTC and AHPETC issues. We wanted to send out information to make sure that all Town Councillors, not just AHTC, were on the same footing and would have this information, especially since we are on a new term, after the General Elections.

As for the Member's first question about whether the other Town Councils have control failures, well, all the Town Councils ‒ and I believe AHTC, too ‒ should be submitting their annual accounts by the end of this month, and once everything is in order, they will be tabled before Parliament and then all Town Councils, I believe, will put it on their websites. So, the auditors' findings would then be made available, and the Town Council Management Report (TCMR) would then, of course, come out in due course to set out the banding as well as the findings on corporate governance and other issues relating to Town Council governance.

The Member says that other Town Councils may also have governance failures. I have no doubt that, from time to time, they will make errors as well. These will be picked up and the MND and HDB secretariats will raise them. They will appear in the TCMRT and we will speak about them. But I think it is also important for this House to keep in mind the context of the issues that AHTC had been facing, in that this is not KPMG citing control findings in relation an audit arising from a year.

Instead, actually, this whole issue started when the new AHTC had taken over from 2011 from a Town Council which hitherto did not seem to have any of these qualified accounts. And for the last four financial years, this is a public statutory body charged with municipal services and collecting millions of dollars in public revenues and receiving millions of dollars in grants from taxpayers every year. In fact, collecting money every month through its principal source of revenue, which is S&CC. And its accounts have not been seen fit by accountants to be passed without disclaimers and without qualification.

So, I think this is accountant-speak, but accountants will say that a qualified set of accounts is a serious matter. And that is for four consecutive FYs. Not by any accountant, but by accountants appointed by AHPETC and then AHTC. FY2011/2012, four consecutive years, until the present date.

AGO is the independent accounting body which audits Government agencies as well, and there were lots of questions that were raised yesterday on Government agencies. Members asked many questions. AGO also made many findings of concern on AHPETC, and, in fact, I have articulated a summary of AGO's findings, which is that there is no assurance that AHTC's accounts are accurate or reliable, or that public funds are properly spent, accounted for and managed. So, that, in sum, is not about one individual process or one individual matter, but it is a finding of the AGO on the whole system of AHPETC and its accounts.

In Parliament, this was also debated and all Members were involved deeply in the discussion. Members from AHPETC had, on the surface, agreed with the Motion and we all know that. But in substance, it did not seem that there were real answers in the debate and some of the questions asked were not answered.

Be that as it may, this matter then went to two levels of the Supreme Court, both at the High Court and the Court of Appeal. And, again, serious findings were found after lawyers from both sides provided affidavits and addressed the Court. The High Court, for instance, in its judgment, stated, and I quote: "there are grave and serious questions" about the state of accounts and whether payments to related parties were valid or proper". It also stated that there were numerous breaches of the Town Councils' Act and regulations.

The High Court found that it was the "height of financial irresponsibility" and if the Town Council were an entity under the Building Maintenance and Strata Management Act (BMSMA0, like a condominium, running a condominium, there would be serious ramifications both in civil and possibly in criminal law. It was a "travesty", the Court said, to ignore its duties, and that some parties who were before the Court had not been completely truthful. That was actually in the High Court's orders. Similarly, the Court of Appeal made certain findings. In fact, it repeated what the High Court had found.

I have just spoken about 2011, 2012, 2013, 2014 and 2015. In 2016, we have KPMG which is appointed by AHTC, in compliance with limb one of the Court of Appeal's orders, and in that respect, the latest report in July raised serious concerns and this was what we articulated in the Parliamentary Question reply earlier.

In relation to what the KPMG auditors are doing in relation to limb two – which is checking whether there are improper past payments – we came across an article by the Chairman of the Town Council, Mr Pritam Singh, to Lianhe Wanbao one or two weeks ago where he said, translated, "We have to rectify the issues raised, the AGO's report and audit all the previous transactions with the former managing agent FM Solutions and Services Pte Ltd (FMSS). If unlawful transactions are confirmed, as Town Council Chairman, I have a responsibility to recover that money with my team."

Looking at the KPMG's remit, looking at what the Town Council is setting out to do, and what the Chairman has articulated publicly to the newspaper, could the Chairman perhaps, in the spirit of this discussion, confirm that he cannot now rule out illegality or unlawful transactions?

Mdm Speaker, I will deal with the point about the Lianhe Wanbao interview.

The word I used was not "unlawful", but "improper", and that word really follows in concert with the Court of Appeal's judgment which was to look at improper past payments, so it will be how KPMG puts it out in its past payment review report. Indeed, if they find that there are payments which ought to be recovered and there were lost monies, then it is our duty to go and recover them. I make no bones about this.

The second issue I would like to raise is the point that the Senior Minister of State brought up about the joint appointment of accountants which HDB, if I heard him correctly, agreed with PRPTC on 3 March.

Can I ask the Senior Minister of State when was this information that HDB had agreed with PRPTC to appoint accountants made known to AHTC? And if the joint appointment of accountants was indeed so important to HDB, the Court of Appeal's judgment of 27 November 2015 allows HDB, MND and AHTC liberty to apply to the Court. I am a bit surprised that the joint appointment of accountants is so important now because HDB did not raise it to the Court of Appeal.

The issue of joint appointment, like I have said earlier, is water under the bridge. It would have been ideal if both could address one set of accountants because, really, it is one former entity and one set of accounts.

In relation to the entire estate of the different precincts that used to form AHPETC, that is why HDB has suggested, after the Court of Appeal had ruled, that AHPETC had to appoint an accountant, and then suggested that perhaps both sides could consider. And that is in the context that the suggestion was made.

Coming back to the Member's confirmation, and I thank him for confirming that he meant "improper" as opposed to "unlawful", because that could be a translation issue. Some of us recall, and we may be wrong, that during the General Elections in 2015, various Members from the Workers' Party or the AHPETC had said that there were no overpayments at all. So, why now the Member's position that there could possibly be "improper" payments, not just improper but that will warrant it being clawed back from FMSS?

Can the Senior Minister of State confirm which individual made that statement?

Various Members.