Ministries' Follow-up Action from Auditor-General's Report

I thank Mr Mohd Ismail Hussein for his question. Before I get into the specifics, let me briefly explain that there are two types of audit conducted annually by the Auditor-General's Office (AGO).

The first type is a financial statement audit. AGO checks if the Government Financial Statements have been prepared in accordance with the law. The Government Financial Statements incorporate the accounts of all Ministries, Departments and Organs of State. AGO's audit hence covers the accounts of all these agencies.

The second type of audit is a selective audit. AGO checks on individual public agencies' compliance with rules and procedures and also on their internal controls. AGO does these selective audits on a selection of agencies every year.

For its audit of the Government Financial Statements, AGO has given an unmodified audit opinion this year, just as in previous years. That is to say, the Government Financial Statements, containing accounts of the Ministries, Departments and Organs of State, are reliable, and public funds are properly accounted for. The same is true for the Statutory Boards, all of which received an unmodified audit opinion from their respective auditors for the Financial Year (FY)2014/2015.

The findings reported in the Auditor-General's latest report for FY2014/2015 did not affect AGO's opinion of the Government Financial Statements. The findings, which are the result of the various selective audits performed by AGO, highlight lapses in complying with the rules and procedures which the Government imposes on itself to ensure proper conduct. Each of our agencies takes every lapse seriously and ensures improvements are made

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promptly.

I will now address the specific questions that Mr Mohd Ismail Hussein has raised. All of AGO's audit findings are looked into by the Heads of the respective agencies. In the case of Ministries, this is the Permanent Secretary. The Permanent Secretaries and the other Heads of the respective agencies are responsible for ensuring that the lapses are rectified and steps taken to minimise recurrence. This includes the need for further investigations within the agencies when required, and to take disciplinary actions where warranted. Any suspicion of corruption or fraud is referred promptly to the Police and investigated thoroughly.

With regard to Statutory Boards, their audit findings and any further investigations are also reviewed by their respective supervising Ministries.

In this year's report, AGO has observed lapses in some agencies regarding their administration of grants, management of procurement or revenue contracts, management of contract variations and related-party transactions. All the agencies involved have conducted their own investigations into the lapses. Except for one audit finding concerning an agency's procurement of event management services, all the other audit findings in this year's AGO report were not repeat lapses.

All agencies where lapses were found have taken steps to improve. Depending on the problem, this includes closer monitoring by supervisors and internal auditors, improved and clearer internal guidelines for officers, enhanced IT systems to enable better tracking, and developing fund administration guidelines for management of programme vendors.

Further, officers responsible for the lapses are taken to task. Because of the consistent way we have dealt with lapses in the past, all public officers and their supervisors know that if they are responsible for any misdoing, firm measures including disciplinary actions, will be taken whenever necessary. All officers know that. If there is any misdoing, firm measures will be taken, including disciplinary actions wherever necessary.

Except for one case in the latest AGO findings which has been referred to the Police for further investigation, all the other cases were due to administrative or procedural lapses. These were mainly due to a lack of knowledge, carelessness or poor supervision. But even where there is no evidence of fraud or corrupt intent, an officer may face serious disciplinary action, such as having his salary increment withheld and being debarred from promotion for a few years. And this, indeed, does happen.

Mr Mohd Ismail has also asked if Ministries' investigation reports will be made public. The Public Accounts Committee, comprising Members of this House, can and has called up

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public agencies to give a full account for areas which are of concern to the Committee. Agencies are required to submit all materials related to their cases, including investigation reports, to the Committee if asked. The Committee then gives its opinions and observations, including its assessment of the agencies' follow-up actions, to Parliament and to the public.

To go beyond this and make public each agency's investigations into every lapse each year will not help in ensuring the thorough internal investigations needed to get to the bottom of things. What matters is that agencies take each and every lapse seriously and take steps to minimise recurrence.

To conclude, let me reassure Members that we have a sound system of checks and balances in place in the public sector, which is why it is regarded as one of the cleanest and most reputable administrations in the world. Public officers and agencies know they have a responsibility to safeguard the use of public funds. Internal controls are in place within each agency, audits by an impartial AGO are carried out regularly and rigorously, and the AGO's findings are made public. The agencies take prompt action whenever problems are found and make no attempt to cover them up. And where there is any suspicion of fraud or corruption, investigations are thorough and errant officers face the full measure of the law regardless of their seniority.

Any AGO audit must be expected to turn up some lapses and oversights. If nothing was found, I would be concerned about the independence and rigour of AGO's audits.

We take every lapse seriously and ensure prompt remedy. But we cannot tighten controls to the point of eliminating all lapses. It is not possible to avoid human lapses completely in any large organisation and we would also be weighing down the system with more rules than is sensible for an effective administration. It would freeze decision-making within our agencies. We must, therefore, continue to maintain a sensible balance of rules, subject ourselves to regular and thorough audit, and take full and proper actions whenever problems are found.

Finally, I should emphasise once again that AGO's findings on compliance with rules and procedures do not impinge on its assessment that the Government's financial accounts are reliable. They leave no doubt as to whether the public's money is fully accounted for and in safe hands.

On the first part of Mr Liang Eng Hwa's question, as I have explained, there are two types of audit. One is an audit of the reliability of the financial statements; the other is a selective audit that AGO does each year on different agencies on quite a wide range of issues, mainly to do with their compliance with the rules and procedures that we have put in place to ensure proper conduct. But it goes beyond that also. It looks at wasteful spending, whether there is value-for-money in spending, and a range of other issues. So, AGO has the remit to decide on what is relevant in its selective audits and it has ranged quite widely across our agencies.

The fundamental issue which I highlighted in my answer is that AGO has given an unmodified opinion on the Government's financial statements. That is, indeed, the fundamental difference between the AGO's opinion on the Government, compared to the AGO's opinion after its special audit of AHPETC.

The problems in AHPETC are fundamentally different. The entire system of accounts is a problem. If I can quote from the AGO Report on AHPETC, "There can be no assurance that AHPETC's accounts are accurate and reliable, or that public funds are properly spent, accounted for and managed". This is not just a matter of poor accounting procedures. It arose because there were so many weaknesses and omissions in the AHPETC accounts that its own auditors and the AGO were not able to determine if monies in the accounts have been safeguarded or how they have been used. That is the heart of the matter. It is the entire system of accounts.

There is no remotely similar problem in the Government. As I have mentioned, AGO has given the Government an unmodified audit opinion on its financial statements, both in the latest audit as well as in previous years. This means that the accounts of all the Government departments, Ministries and Organs of State are reliable, and public funds are properly accounted for. The same is true for the Statutory Boards which have their respective auditors. They all received unmodified audit opinions from their respective auditors in their latest audits.

If I can put it simply, the whole house of AHPETC's finances is unsafe, if you look at what the AGO findings say. Both AHPETC's own auditor and the AGO could not certify the AHPETC house as structurally safe, structurally sound. Apart from it being unsafe and unsound, there

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are also many individual defects and problems.

By comparison, the Government agencies audited by AGO do not have unsafe houses. The house is safe. There is no question as to whether public monies are fully accounted for. There are some repairs needed to the house in specific areas but everyone can be confident that the house is safe. And there is also full visibility. The curtains are not drawn. There is full visibility. This is the fundamental difference.

The Deputy Prime Minister said that the findings in the AGO's report are mostly not repeated; they are not repeat findings. How did the Minister arrive at that conclusion because AGO, when it does audits, it selects agencies and it may not select the same agencies or Statutory Boards every year. For example, the People's Association, the last time AGO did an audit was quite some time ago. How does the Minister arrive at the conclusion that most of the findings are not repeat findings?

I would not be able to say that every fault or lapse found this year has never happened before. As the Member said, AGO, like any external auditor, can only make selective audits and focus on different transactions each year in different agencies. However, if the Member asks me for an assessment, looking at all the years of the AGO's reports ─ and I must say that AGO is a very thorough organisation ─ it is clear that lessons are taken in each and every case. There are one or two instances where you literally get a recurrence of the same problem, which we take very seriously. But by and large, lessons are taken.

I have to emphasise that there will be no perfection in this matter. From time to time, there will be human lapses and, despite the rules having been put in place and strengthened after initial audit findings, you will sometimes get people overlooking the rules. But by and large, if we look at the way Government agencies have responded to the AGO reports, actions have been taken, disciplinary actions have also been taken and improvements have been made. We do track this.

We also track whether there is a recurrence in the same agency or the same type of problem. In this year's report, for instance, there was only one recurrence out of that whole set. We track every single lapse to see, "Has this happened before? Were the lessons taken after the last time it happened?" And we found only one example where, in fact, there was a recurrence of the same type of lapse.

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Madam, some supplementary questions for Deputy Prime Minister Tharman. He made some reference in his answer to the audit done by AGO on AHPETC, and I would like to ask him some questions on this.

Firstly, is the Deputy Prime Minister aware that the Town Council has since filed the subsequent audited accounts for FY2013/2014 by 30 June 2015?

Secondly, can the Deputy Prime Minister confirm if he has read those accounts?

Thirdly, the auditors who audited our accounts, which were recently submitted on 30 June, is the Deputy Prime Minister not aware that out of the 13 disclaimers that were put into our previous accounts, the auditors have confirmed that only three remained unresolved?

Last of all, is the Deputy Prime Minister also not aware that in this recent audit that we did for FY2013/2014, our auditors actually made the observation that except for certain specific issues, the Town Council has actually complied with the Act, in terms of keeping proper accounts and books?

I have been reading the reports regarding the latest accounts. First, of course, it has to be noted that they were submitted very late, several months after they were meant to be submitted to the Ministry of National Development (MND). MND, in fact, issued a reply to queries on the matter, which I have read. The accounts are still qualified with disclaimers of opinion. They are qualified on several accounts.

I should note also that these are new auditors appointed by AHPETC. They have flagged eight different areas of concern involving non-compliance with legal and regulatory requirements ─ eight areas where there was non-compliance. And these were fairly basic areas. They were not minor areas of infraction. There were still matters to do with related-party transactions, quite significant matters. There were lapses with regard to transfers to Sinking Funds, which are an extremely important matter for all Town Councils: failure to transfer monies to Sinking Funds when due is really putting the house at risk. The transfers that AHPETC made, according to its own auditors' report, were late. And as the Member will recall from the AGO's previous report, errors were discovered in the computations only after AGO's audit. So, there is something seriously wrong there.

There were also problems to do with the accounts themselves: problems to do with the opening balances; problems to do with determining the accuracy of the service and

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conservancy charges (S&CCs) that were owed to the Town Council; problems to do with accounting for creditors and accrued expenses. So, it is not something to be white-washed. When the house is structurally unsafe, one does not just go and put a new coat of paint on the front walls. I think it needs a very hard look. The foundations need to be put in place. It is hard work. But you have had a lot of time to do so.

Madam, Deputy Prime Minister Tharman has not actually answered my questions whether he accepts that in the FY2013/2014 accounts which our auditors approved, that they have noted that out of the 13 disclaimers from the past, only three remained unresolved. So, I would like him to confirm whether he accepts that point.

Secondly, does the Deputy Prime Minister also accept that some of the areas which our auditors highlighted were actually carried over from the previous Town Council's opening balance issues, for example? That is the second point.

The third point, also regarding the Sinking Fund transfers, I think it is public knowledge that the Town Council has still not received its operating S&CC grants for FY2014 and FY2015. So, is the Deputy Prime Minister not aware of that as well?

Last of all, does the Deputy Prime Minister not accept what I put to him earlier that the auditors' opinion was that except for the specific observations, we have complied with the Act?

This is like saying that, except for the fact that the pillars of my house are in serious danger of collapsing, everything is fine. The examples that I have given of the areas that the auditor has qualified do strike me, as a Finance Minister, as being fairly serious examples. They are not minor infractions which you put a coat of paint over. They are very serious examples. So, I would, really, strongly advise not to get into the game of saying whether it is three or eight and so on, but to look into the substance of the matter. These are very serious issues, of failure to transfer monies to the Sinking Funds, being unable to account for your S&CCs after a few years. They are very serious matters to be taken seriously by everyone up and down the line. I would strongly advise that.

Second, on the matter of grants ─ was that what the Member asked about? Here, again, I have looked at MND's statement on the matter which I have in front of me. I am sorry to have to go through it again, but I will have to take Members through the key issues.

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First, AHPETC had made a rather unusual request that the MND grants ─ which ought to be split, going by the normal rules and procedures, between the Sinking Fund and the operating fund ─ AHPETC made an unusual request for all the monies to go into the Sinking Fund. And MND, despite the unusualness of this request, said it was prepared to consider the suggestion and merely asked for some cash flow information to ensure that, if MND does as requested, the delivery of essential services would not be compromised. That was an entirely reasonable request by MND. They are willing to entertain the suggestion AHPETC made, but they would like some information to make sure that delivery of essential services is not compromised.

AHPETC has not answered these questions. They are very reasonable questions, legitimate questions, and it has not answered these questions. And this is exactly the same thing as what happened in 2014.

I think the Member will also know ─ and I do not have my materials in front of me ─ that what is owing from the operating fund to the Sinking Fund is actually a very substantial sum. Even if you take into account MND's grants ─ which MND is willing to discuss with AHPETC, and you have part of the MND grant that has to properly go into the Sinking Fund and another part which goes into the operating fund – the amount that is owed to the Sinking Fund from the operating fund would not be solved by MND grants. There is a more fundamental problem.