Proper Accountability by Public Sector Entities for Public Resources

Mdm Speaker, thank you for the opportunity to speak on this Adjournment Motion. I will take this opportunity to speak on the Auditor-General's Office (AGO)'s report that was released in July, its attendant issues and implications, as well as to provide some alternatives as to how this situation can be improved.

Mdm Speaker, given the gravity of the financial lapses of Statutory Boards flagged by the AGO's report, the complete silence of the respective Ministries and Ministers beyond mere platitudes is of serious concern to the public.

The most fundamental issue at hand is the lack of accountability by respective Ministries in exercising supervision over how taxpayers' monies have been used and misused. This calls into question the competency of the respective Ministry, and the soundness of current financial mechanisms and practices to prevent such lapses. Equally, questions arise as to whether the interests of the public have been compromised as a result of such financial lapses that involved up to millions of dollars. A deeper scrutiny of the related issues is, therefore, necessary and critically lacking.

I begin, first, with the lapses of the People's Association (PA). The interwoven role of PA with the daily lives of citizens might explain why much attention has been focused on its lapses. For one, the role of the grassroots organisations (GROs) has been so closely integrated into the daily lives of citizens. Many citizens, for example, have attended events and lessons organised by the GROs at the community centres. It also signifies the importance with which citizens regard the PA and, in turn, the litany of financial lapses by PA deserves close attention.

Mdm Speaker, it is noteworthy that this is the first time that AGO has, in fact, conducted an audit on PA and the GROs under its umbrella. What is, perhaps, more appalling is that it is only the second time, since Financial Year (FY) 2000/2001 that the GROs have had their

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financial statements audited.

Although PA has its own independent auditor engaged for annual audits, PA has, however, failed to provide the financial statements of related GROs for audit for more than 10 years. The omissions have led the PA's own auditors to issue adverse opinions in FY2006 to FY2013. PA has previously responded to this adverse opinion on the basis that, and I quote, "The auditors had given an adverse opinion on the financial statements of PA for one reason: not including the accounts of the grassroots organisations in the PA accounts."

However, this reply understates the significance of the failure to provide the necessary financial statements. As the PA's auditors noted in issuing the adverse opinion, the failure to provide GRO's financial statements meant that the PA's financial statements reflected in the annual audit do not accurately represent the financial state of affairs of the Association between the FY2006 and FY2013. It was only in FY2013/2014 that PA has provided the financial statements of the GROs to their own auditors.

PA is expected to be responsible and accountable to its citizens as to how the taxpayer funds have been used by GROs. Citizens deserve to know the financial health of the GROs, not just moving forward, but also of the past 10 years. In any case, the failure to provide the GROs' financial statements for audit for more than 10 years is completely unacceptable. It is shocking that PA has continued to do so for such a long time and has failed to provide oversight of GRO's compliance with its Financial Rules, as noted by AGO. AGO itself highlighted that, and I quote, "the common lapses found in most of the GROs test-checked indicate that the GROs may not be familiar with PA's financial rules, even up till today."

As a result, the lack of auditing of GRO funds before 2014 casts doubts on whether the funds have been used in accordance with the relevant financial rules during these years.

In order to dispel such doubts, the Ministry overseeing PA needs to disclose the financial statements and records of the GROs and have them audited.

While PA has started to provide the financial statements for FY2014, this is clearly belated and was what an accountable and responsible body should have done 10 years ago, and has the obligation to continue to do.

Turning to the AGO report, AGO had noted many financial irregularities and lapses committed by PA. Several notable irregularities include:

First, lapses in management of tenancy contracts and procurement. For example, 10 out of the 35 CCMCs test-checked did not obtain relevant approvals for the direct award of

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tenancy contracts totalling $3.67million without competition. According to AGO, a direct award of tenancy contracts without any competition can only be waived under exceptional circumstances.

Second, common lapses in procurement: out of the nine GROs that were test-checked, five GROs had awarded contracts without obtaining approvals from the relevant authorities and the approval was backdated after the contract was awarded. Four of these GROs did not even seek approval when making 10 direct purchases from suppliers. AGO has also noted that PA did not provide any compelling reasons to justify direct purchases. This led AGO to question whether competitive procurement has been compromised in favour of expedient decision-making.

Third, lapses in engagement of training operators, including the failure to call for competitive bids involving contracts worth over millions of dollars.

Fourth, failures to manage conflict of interest involved in related-party transactions.

The less than prudent manner in which funds were handled by GROs has severe implications, the most important being that such lapses have compromised the interests of residents.

Mdm Speaker, many of the tenancy procurement and training operators' contracts have been awarded without competitive tenders. But without having to compete with other suppliers, how can residents be sure that the awards of such contracts are, indeed, the ones which can provide the best quality of services and products for the residents?

There is, of course, a need to strike a balance between ensuring expedient decision-making and competitive tenders and procurement. However, it appears that too much balance is struck in the face of expedient decision-making. Even in the face of time pressures, procedural compliance still ought to be observed as much as possible. The purpose of procedures is to safeguard and protect the interest of relevant stakeholders – in this case, the residents. Further, procedure compliance provides a measure of transparency and accountability.

Another point of concern is how pervasive such poor financial accounting and practices are across the 1,800 GROs. AGO has only test-checked a small sample of GROs, a mere 6.5%. Yet, the audit has already turned up significant lapses. There is a reason to believe that financial lapses of a similar nature may be found in the other unaudited GROs. The worry, of course, is that the lapses flagged out by AGO are only the tip of the iceberg.

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Finally, it is clear that internal audits of GROs are severely lacking. It is not the case that PA comes up to be audited annually by AGO. In fact, this is the first time that PA has actually been audited by AGO.

While PA has set up a Grassroots Finance Review Committee, the committee is, however, chaired by three grassroots leaders. This calls into question the independence of the Review Committee, and an independent body should be preferred instead. Also, an audit of the other GROs that have not yet been test-checked by AGO should be conducted.

Mdm Speaker, I now turn my focus to the lapses of other Statutory Boards. There are two main points to be noted. First, that the irregularities found in PA are also a common occurrence across the various Statutory Boards test-checked by the AGO. Second, such lapses are not one-off incidents, but occur with an alarming regularity year after year. Time and time again, AGO has noted recurring financial lapses over the years. For instance, between FY2010 and FY2014, the following recurring lapses have been observed by AGO.

First, lapses in procurement and tender contracts as a result of a failure to adhere to Government procurement rules, principles of transparency and open and fair competition. The relevant Statutory Boards, which were supposed to ensure a competitive bid for tender, had failed to do so and had waived competition on extremely weak grounds. For example, AGO found that National Parks Board (NParks) had awarded three consultancy contracts worth a total of $20.77 million and had waived competition without compelling reasons. Although NParks had cited tight timeline as the main reason for waiving the competition, AGO said it found "no evidence to show that the tight timeline was caused by unforeseen and urgent events".

Second, failure to seek the requisite approval from an approving authority, or only doing so after the contractual commitment had been made. In some instances, approving authorities were not provided with complete or correct information on matters crucial for decision making.

Third, related-party transactions were carried out.

Fourth, poor management in the administration of grants.

Many of the financial lapses have been noted by AGO to be a result of administrative expediency taking priority over financial prudence. Mdm Speaker, it is very worrying that these financial lapses highlighted are the same lapses that are still occurring today.

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This is a Government that prides itself as one that is accountable and able to provide good governance. The recurrence of similar financial regulations points to an inherent systemic weakness and a failure to put into place sufficiently rigorous mechanisms to rectify such irregularities. The Government has a duty to do so, especially when it involves significant sums of public funds. Clearly, we expect that our funds be put to good use, in ways that enhance and not compromise the welfare of the public.

Putting in place a regulatory mechanism is not enough. Competent and regular training of officers involved in this process is necessary. From the AGO Report, it appears that there is a serious issue that officers involved are not sufficiently familiar with the relevant financial procedures and compliance process. The lapses in the management of tenancy contracts, procurement and engagement of external operators by PA form one such example. Moving forward, conducting regular training is something that the Ministry ought to be looking into to ensure procurement officers in public agencies understand procurement best practices.

Finally, would the Government consider centralising procurement activities in one agency to mitigate the financial risk borne by the Government in view of the fact that poor procurement practices seem to occur persistently within Statutory Boards?

Mdm Speaker, when Statutory Boards have poor financial practices, the ones who bear the brunt are ultimately the citizens. While it is important to ensure that such lapses will be significantly reduced in subsequent financial years, it is also important for the relevant Ministry to account for such lapses that had occurred previously.

Mdm Speaker, Mrs Lina Chiam has raised three points which I would like to address. The first is her concern over repeated lapses. As was noted in the earlier replies by Deputy Prime Minister Tharman and Minister Lim Swee Say, public agencies are subject to annual audits whether by internal auditors as well as external auditors or AG. Lapses are taken seriously and investigated and appropriate actions taken to prevent recurrence. Depending on the problem, the measures include closer monitoring by supervisors, clearer guidelines for officers, enhanced IT systems to enable better tracking and various other measures. As a result, while recurrent lapses can still happen, they are the exception rather than the norm. I should say this again: whilst from time to time, there are recurrent lapses, they are very much the exception rather than the norm.

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For example, in this year's audit by AGO – and I say this not to trivialise the matter but just to state factually – only one of the findings was a repeat lapse and this was not because the agency did nothing following the first observation, but that AGO thinks their new measure were still not rigorous enough. So, the agency did something after the finding but AGO thinks that it is not good enough. That is the rigour of the system that we have. I should also emphasise what was pointed out before that notwithstanding these findings, AGO has given an unmodified audit opinion this year and in previous years on the Government's financial statements. So, that is on the first point.

The second point which Mrs Chiam raised had to do with the adequacy of training and the competency of the officers involved in procurement. Apart from policy reviews and procurement systems, it is equally important to build up the capabilities of our procurement officers. After all, most lapses occur not because there are no rules, but because the rules were not complied with, as required. We have a training framework which was enhanced recently. This is the new procurement competency framework which details the competencies expected of officers in various procurement roles so that they can carry out their work effectively. There is also a training roadmap to help our officers build up their mastery of procurement knowledge and skills.

We also launched the procurement specialist track last year to professionalise and provide clear career development pathways. There is a career development forum that gives opportunities to finance and procurement officers to deepen their skills and/or widen their exposure to different job scopes and organisational settings. In addition, there are ongoing efforts to tap the knowledge and experience of officers who have built up valuable expertise over the years in specialist areas, such as construction and information and communications technology (ICT). This allows officers to learn from one another and from established practitioners.

Thirdly, with regard to Mrs Chiam's suggestion on more centralised procurement, to provide the context, I should remind Members that our procurement rules are calibrated to the value and risk of the purchases. Therefore, the approval process is highly centralised for high value projects. Projects above $80 million must be approved by the Development Planning Committee comprising three Cabinet Ministers after rigorous scrutiny by the senior officials in the Ministry of Finance and the Ministry concerned before tenders can even be called. Roughly, half of the total value of public sector procurements each year goes through this Development Planning Committee process. Those of us who have been involved in this know how much rigour and scrutiny are involved. Approval of lower value procurements is typically decentralised for greater efficiency and responsiveness. Even so, the process is governed by a clear set of rules and complemented by regular audits.

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Singapore is not unique in this. Decentralised procurement is practised in most advanced countries with efficient procurement systems, such as Australia and the United Kingdom. Nonetheless, for common goods and services, some forms of centralised purchasing are, in fact, being practised today. We have over 50 bulk contracts which all Government agencies can tap on, covering items, such as office equipment and professional services. Overall, we aim to strike a judicious balance. As the needs of the public sector agencies have grown more complex and varied over time, excessive centralisation will weigh the procurement system down and create a new set of problems. Our agencies should retain sufficient flexibility and autonomy to perform their roles effectively and be regularly audited, as they are now, to preserve system integrity.