Auditor-General's Report on Audit of Aljunied Hougang Punggol East Town Council (AHPETC)

Madam, we support the Motion and, as the Town Council Chair, I would like to put the concerns about the accounts of AHPETC in proper perspective.

As we have said before, we welcome the audit by the AGO. The Workers' Party believes in transparency and accountability. We have given whatever documents we could to facilitate the audit, including documents with mistakes made or that it embarrassed us. The Town Council has done its best to prioritise the audit with resources it has. The past year has been gruelling for the management and staff as we were running a "live" operation at the same time. The team auditing us consisted of eight members from the AGO and eight from Pricewaterhouse Coopers, a total of 16 for the past nine to 10 months. I wish to record my sincere thanks and appreciation to all those who worked long hours to complete the audit.

The Motion expresses concern about some aspects of the Town Council's accounts and record-keeping, particularly in FY2012, two years ago. We, the Members of Parliament for Aljunied, Hougang and Punggol East, are concerned about these matters. Some of the matters flagged out have already been addressed or improved upon; others are works in progress that require more time.

To facilitate the public's understanding of the key improvements we have made or are making, I wish to distribute Annex 1 to my speech. Madam, may I have your permission to distribute an annex?

Yes, please. [A handout was distributed to hon Members. Please refer to Annex 1.]

Members will see from the Annex 1 that some of the key improvements and updates have been tabulated in this two-page attachment and some of the Members of Parliament and myself will be taking Members through some of the specific changes later on.

Madam, in this debate, all the Members of Parliament of the Town will be giving more insight into specific areas to enable the public to have a better understanding of the matter and the actions we have taken and are taking in response to the AGO audit. I will focus on

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the findings about the Sinking Funds and related-party transactions.

First, Madam, the Sinking Funds. We note that there could be a misunderstanding amongst some members of the public that the Sinking Fund monies were somehow lost. This is not the case. At all times, the monies that were not transferred to the Sinking Funds were still in the Town Council's operating fund bank accounts. The issue picked up concerns the transferring of the monies from one bank account to another. Let me explain how the omission of the transfer arose before I go into the corrective actions taken.

Monies, such as income and Government grants, are first received into the Town Council's operating fund accounts. During FY2011 and 2012, the Town Council made some payments for Sinking Fund expenses out of the operating fund accounts, believing it could net off the Sinking Fund expenses before making the transfer to the Sinking Fund accounts later.

The Town Council accepts that it should have transferred the full amounts due to the Sinking Funds each quarter and should have paid Sinking Fund expenses directly from the Sinking Fund accounts. We have taken steps and made good the transfers. For FY2011 and FY2012, the necessary transfers have been done. We have also done the transfers for FY2013 and have been making transfers for FY2014. As for the errors in transfer amounts flagged by AGO, we have also made the corrections and payments.

AGO noted that the Town Council had wrongly used Sinking Funds for the Neighbourhood Renewal Programme (NRP). The TC had assumed that funds for NRP should be deposited into Sinking Funds and paid from there. However, as there was actually no legal requirement to keep the NRP funds in Sinking Funds, we have corrected this and, henceforth, transacted for NRP projects out of routine or operating funds. This error arose because the Managing Agent had not encountered managing an NRP project before and was not certain whether such NRP monies should be transacted out of Sinking Funds or operating funds. This was not a case of using the Sinking Funds for the wrong purpose.

Madam, there is still one issue to be attended to and, that is, the amount of GST refunds to be transferred back to Sinking Funds. This will take some time to unravel. Going forward, the Town Council will work with its IT system vendor to implement a function to capture Sinking Fund payments that attract GST. This will make it much easier to compute how much GST refunds from IRAS should go back into the Sinking Fund. The observation about the Sinking Fund lapses has, thus, been substantially addressed.

Next, Madam, I move on to related-party transactions. The Town Council has never disputed that the Town Council and its Managing Agent (MA), FM Solutions and Services Pte

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Ltd, are deemed to be related parties under the financial reporting standards. In a small set-up like FMSS, which focuses on managing one town, it is inevitable that the Directors of the company would be involved in holding key positions in the Town Council as well. This issue of RPTs in our Town Council has been the focus of much media attention. Misimpressions have been created that the TC Secretary and its General Manager were the main directors and shareholders of the company, are freely being given contracts without tender and paying themselves handsomely without accountability. Contract values have been highlighted in media headlines as if these were profit margins. It is necessary to highlight some key facts as these misimpressions need to be debunked.

One, the MA has no decision-making power in relation to the award of tenders. Tenders are awarded by a Tenders and Contracts Committee consisting of Members of Parliament and appointed Councillors with no interest whatsoever in the MA.

Two, the MA is not involved in evaluating any tender in which it is participating. When the MA and Essential Maintenance and Services Unit (EMSU) tenders are involved, the MA is excluded from the deliberations.

Three, the only time FMSS was appointed to provide services without tender was in 2011 in the aftermath of the General Election. These waivers were only for two contracts for very short periods of time. One, for MA services for one year; and the other for EMSU services for nine months. These were transitional arrangements. For all subsequent contracts involving FMSS, open tenders were called and advertised in the papers accordingly.

Five, for the first contract in 2011 for MA services, it was triggered as the incumbent MA, CPG Facilities Management, asked to be released from the contract with the TC for business reasons. There was an urgent need to put in place a computer system due to the termination of the former system in use. FMSS was appointed for a one-year period only to help the TC in the transition phase. Their rates were the rates that CPG FM charged the former Aljunied TC.

Six, for the first contract in 2011 for EMSU, there was no intention to waive competition. The TC's preference was to extend the existing contractors until a tender could be called for the whole Town. However, the existing contractors were not agreeable. FMSS was appointed to provide these services for nine months until the tender could be awarded for the Town. I shall elaborate more on this shortly.

Seven, in 2012, open tenders were called for MA services as well as EMSU services for the six wards in Aljunied-Hougang Town. For MA services, three companies purchased the tender documents, including EM Services, that is, the Managing Agent for many PAP Town

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Councils. When the tender closed, only FMSS tendered to be Managing Agent (MA) for AHPETC. Prior to submitting the tender, FMSS also submitted their declaration of interest in accordance with Town Councils Financial Rule 76, sub-rule (3).

Eight, as the Town Council was left to evaluate FMSS as the sole tenderer in 2012, the Town Council decided that it was prudent to have a tender process for MA services, subject to a voluntary audit. It called for quotations from three audit firms and appointed one firm to do the review. The agreed upon scope included considering whether the current procedures and practices were adequate to ensure that the procurement was made in the ordinary course of business and whether there were adequate controls to ensure that the award was conducted in an unbiased, objective, fair and transparent manner. It also covered assessing whether the evaluation and award of the tender was conducted in accordance with existing requirements and good corporate governance practices. The auditors examined the records of the evaluation done and also sat in on an evaluation meeting. After this voluntary audit in 2012, the Town Council was graded "A".

Nine, contrary to some misimpressions that the Managing Agent has a free hand to manage the Town Council, the Town Council, in fact, has in place various structures to oversee the work of the Managing Agent. I would like now to distribute Annex 2 to my speech showing the various committees and channels that aid monitoring of MA services.

Ms Lim, do not forget to ask for my permission.

Sorry, Madam. May I have your permission?

Yes, please proceed. [A handout was distributed to hon Members. Please refer to Annex 2.]

Thank you. Madam, as Members can see from Annex 2, this sets out, not just the composition of the Town Council itself, but also its constituent committees that oversee various aspects of work, such as estate, finance, tenders, audit, projects and so on. On the last page, Members will also see some additional channels by which the MA service levels are monitored by the Town Council, in particular, the Members of Parliament. Later on, my colleagues will also take Members through some of these points.

Madam, in relation to the related-party transactions, I would like now to talk about the disclaimer in the FY2012 financial statements on this point. In our Town Council's audit for FY2012, our auditors put in a disclaimer that because the project management fee details were not disclosed in the financial statements, they were unable to determine the

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completeness of the related-party disclosures.

The Town Council could not understand this at that time as there was no clarity of practice in the financial statements of Town Councils. For instance, the same auditors audited us earlier in FY2011 and only required the related-party disclosure to disclose MA fees. The former Aljunied Town Council Management also had related parties and yet there were no related-party disclosures in the financial statements which had no disclaimers.

Madam, the Town Council has no issue with disclosing the value of the related-party transactions. Moving forward, we have suggested that the Ministry make it clear which parties are considered related in the Town Council's context. Most Town Councils are managed by managing agents with the Town Council's Secretary and General Manager being fairly senior staff in their respective companies. Should all TCs then make such related-party disclosures?

Madam, I also note that due to certain media reports, there may be a misconception that the values of the project management fees and EMSU fees paid to the MA were not recorded in the financial statements. Madam, there are no off-book payments whatsoever. These fees are recorded in the Sinking Funds' and operating fund's expenses. The auditors' issue in FY2012 was that they wanted specific disclosures under a related-party transaction heading. So, I thought it is important to clarify that.

Madam, next, I would like to move on to the AGO's finding on the EMSU contract that was awarded for nine months in 2011. AGO has flagged several lapses relating to this, such as not planning properly so as to call a tender and lack of due diligence in assessing the fee proposal. We agree we should have handled the situation better. However, please let me explain the situation at the time.

The new team had just taken over management on 1 August 2011 and was focused on priorities, such as stabilising the estate management operations and also of upscaling the computerised financial accounting system to cater to the GRC accounts. At that time, the EMSU services for the six wards in Aljunied-Hougang Town were then provided by three different contractors due to electoral boundary changes for GE 2011. Aljunied GRC had four wards serviced by CPG FM, one ward drawn over from Marine Parade GRC being serviced by EM Services and Hougang SMC being serviced by FM Solutions & Integrated Services.

The TC had wanted to preserve the existing contractors until a tender could be called for EMSU services for the whole Town. There were verbal discussions with CPG FM to extend their contract for six months but, in the end, it did not materialise. By the time the official reply was received, it was mid-September, two weeks before the contract expired on 30

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September. The Town Council had appointed a committee to evaluate a proposal by FMSS to step in due to the urgency and the public interests.

The committee met on Sunday, 18 September 2011, and went through the proposal to use the existing rates charged by CPG FM and EM Services. Unfortunately, it was not noticed that for two of the items, the wrong multiplier was used. The items were costed per equivalent dwelling unit (EDU) rather than the correct unit which should have been per block and per lift.

There was a rounding off of a unit rate to two decimal places instead of three, resulting in an erroneous calculation. Approval was obtained from the Town Councillors via email for an estimated fee of about $70,000 when the fees should have been in the region of about $50,000. We have gone back to investigate the matter. Though the approval was for a fee of $70,000, the actual amounts billed by FMSS were lower, being about $67,000 to $68,000 each month. The TC has since calculated the amounts, using the correct multipliers. There was an unintended overpayment to FMSS for the nine months. A sum of about $122,000 has since been paid back to the Town Council to correct the error.

Why did the error occur? I bear personal responsibility as I was Chair of the Evaluation Committee. Despite the urgency of the matter, I should have ensured that the former contractor's invoices were sighted for comparison before the Committee accepted the pricing proposal and obtained the Town Council's approval. That said, the error was not deliberate. There was absolutely no intention on the part of the Committee nor the contractor to approve higher payment rates for this interim period of nine months.

Next, Madam, I move on to the issue of disclosures of the related-party transactions. It was pointed out that before entering contracts with FMSS, the relationships and extent of past or existing dealings should have been recorded, as considered by the Town Councillors. We note the advice and will exercise more diligence in detailing and recording the RPTs in future and discuss how to mitigate the risk. To this end, we will implement a checklist to be filled in by all tenderers and contractors to facilitate this.

I wish to highlight, however, that, in the circumstances, there was little risk that the Town Councillors did not know of the relationships and the past contracts. At the time the contracts in 2011 and 2012 were entered into, the appointed Town Councillors remained the same. They knew of the circumstances of the formation of FMSS and contracts being awarded to FMSS and their values. When the tenders from FMSS were received, the ACRA-profile of FMSS was submitted and considered by the committees evaluating the tenders.

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Next, Madam, I move on to the issue of oversight of payments. Much has been published about the fact that the Secretary and General Manager issued invoices, certified work done and approved and signed cheques to FMSS. Appendix C, Attachment 1 and its total amount for 84 invoices of $6.6 million have been the subject of a front-page headline on 9 February 2015. The Lianhe Wanbao headline was entitled "TC Secretary and GM pay their own companies $6.6 million" and it has caused the intended alarm. However, Madam, the alarm is not warranted. Let me explain why.

First, regarding cheque payments to FMSS, the Town Council had adopted an SOP on 8 September 2011, soon after the new management took over. It was the policy that no cheque to FMSS of whatever amount could be issued unless either the Town Council Chairman or one of the Vice Chairmen co-signed the cheque. Thus, it was not possible for FMSS to pay itself unless it was authorised by the Town Council Chair or Vice Chair who have no interest in FMSS whatsoever.

Secondly, out of the amount of $6.6 million in payments, about 96% of that, or $6.4 million pertained to agreed monthly sums for Managing Agent and EMSU services rendered. These were monthly sums under contracts approved by the Town Council where the rates were already approved.

Third, regarding the issue of segregation of duties, it is clear from Appendix C's list, if I may invite Members who have the report to look at Appendix C, the Attachment with the 84 invoices. Attachment 1 to Appendix C of the AGO report.

It will be seen from this list of 84 invoices that from item 30 onwards to item 84 – and this was following the appointment of a new finance manager – we adopted an approval process whereby there were three other persons who were not directors of the Managing Agent who were involved in the certification of work, issuing of payment vouchers and signing of cheques.

In other words, the segregation of duties was done on the Town Council's own initiative within FY2012 itself. It should be noted that the bulk of the invoices in Attachment 1 are subject to the improved approval procedure; 55 out of 84 invoices were subjected to this improved segregation of duties. As for the 11 invoices highlighted by Pricewaterhouse where the General Manager also certified the work done, these were invoices before July 2012 and nine of them pertained to agreed monthly fees for EMSU and Managing Agent services approved by the Town Council earlier, leaving just two items, amounting to $1,165, which were not such agreed monthly fees.

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Madam, at this stage, may I have your permission to distribute Annex 3 to my speech?

Yes, please. [A handout was distributed to hon Members. Please see Annex 3.] You can proceed with your speech.

Thank you, Madam. As Members can see from Annex 3, there are three key points which I wish to highlight in the annex. The first point is, again, to reiterate that out of the $6.6 million invoices, about 96% of them consist of monthly Managing Agent and EMSU payments which are based on fees approved by the Town Council earlier.

Second, the point raised where the GM certified work done and approved the payment, 99.9% of these 11 invoices were, again, such pre-approved rates which had been endorsed by the TC earlier of MA and EMSU services. And the listing of the 11 invoices can be seen in the table here and Members will see that these are, indeed, for Managing Agent and EMSU services. If I can ask Members to turn over the page of Annex 3, the third point I would like to highlight once again is that, as far as the segregation of duties is concerned, it can be seen from the Attachment 1, serial numbers 30 to 84 that, at this juncture, we had already implemented the segregation where non-shareholder officers were involved in the payment approval process.

Next, Madam, I would like to move on to the question which was asked of me and also of the Vice Chairs as to how we would verify that works were done before we signed the cheques. Madam, the three categories of works that these queries related to were FMSS' services for project management, MA services and EMSU services.

So, Madam, first, I would like to touch on project management fees. For projects, the cheque signer would usually see the architects' certificate and the quantity surveyors' calculations of the value of the works done. The project management fee is a fixed 3.5% of the works. The auditor said that they were unable to verify what was presented to the cheque signer at the time, namely, FY2012. The Town Council had explained that the supporting documents had been detached after the cheques were signed as they needed to be filed by the Estate and Projects Department. So, Madam, it should be remembered that these transactions took place in FY2012.

Next, for the MA payments, which are based on agreed monthly rates, the level of services provided is subject to evaluation on a daily basis. These include some of the channels that are mentioned in Annex 2, and I would not want to belabour the point. I think Members can read from Annex 2. If there are other best practices from other Town Councils which other Town Council Chairs would like to share on how they verify that the Managing Agent's monthly payments are due before signing the cheques, I would be very enlightened to hear

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what can further be done.

Next, Madam, for the EMSU services, how do we check whether the services have been rendered? Monthly reports are churned out to show performance based on time of response and actions taken based on various indicators.

Next, Madam, how are we going to manage the related-party transactions better? We have started to introduce more oversight into works and payments to the MA and, in this regard, Annex 2 is also relevant, which we distributed earlier. But I would also like to highlight a couple of points.

First, as regards project management, we continue to require the architects' and quantity surveyors' certificates before processing project management fees. Since April 2013, the Members of Parliament have started attending project meetings to assess the necessity for works and the details. Since late 2014, the Town Council's Estate and Community Liaison Committee has been tasked to approve works and project management fees before the works commenced. The Town Council Chair is also now asked to sign off on works orders before invoices are issued for project management fees.

Next, Madam, for MA and EMSU fees, additional procedures have been introduced. Instead of direct invoicing, a Works Order is raised by the Office Manager and countersigned by the Town Council Chairman. Thereafter, FMSS would raise its invoice, which is forwarded to the Finance Department. The payment voucher would be approved by the Deputy General Manager before the cheque is issued. These enhancements were noted by Pricewaterhouse in the report, Appendix C, at para 1.39.

Madam, going forward, we will draw up a checklist in assessing tenders and contracts to ensure that the necessary information is captured and presented to the persons deciding on awards. The decision-makers can then also decide on how best to manage the conflicts of interest.

Madam, before I end, I would like to just respond to three points raised by the Minister earlier when he presented the Motion. First of all, the Minister stated that the Town Council or the Members of Parliament had shown disrespect to the auditors and to Parliament by not providing information.

Now, Madam, this is not the case at all. I would like to highlight to the House that thousands of documents were given to the AGO and PricewaterhouseCoopers (PwC). As an example, they looked at 16,481 Works Orders. And if we looked at the appendices that are attached to the AGO report, they were actually much shorter than what they originally were,

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meaning the attachment which Pricewaterhouse included in the report saying that certain matters are outstanding.

Members who have the AGO report, if you care to turn, I would like to highlight certain things. Appendix C, this is page 3, Attachment 2. Members will see that there is one payment voucher outstanding but there were actually originally 22 requests; there is only one outstanding. Attachment 3, there are three items outstanding out of an original 75. And if Members look at Attachment 4, although the heading says "Outstanding contracts, quotations, supplemented agreement" and so on, if Members were to read the last column of that table, PwC's response, Members will see that, actually, the auditors confirmed that they have received most, if not all, of the documents. So, I urge Members to note that. We have done our best to provide whatever information we could to the auditors.

Next, Madam, the Minister highlighted the fact that our financial statements were late and, in particular, he mentioned the financial statements of FY2013/2014. Minister would, of course, recall that the AGO audit was called in February 2014 and continued from March 2014 all the way until January. So, all the papers were stuck for this audit and it was not reasonably possible for the FY2013 annual audit to commence while this audit was going on.

In his speech earlier, the Minister mentioned that some of the conditions that he might want to impose on the Town Council, going forward, is that he would require us to submit our financial statements for FY2013 and FY2014 within certain timelines, I believe he said June and August. Well, Minister, we are not certain whether we can meet these timelines but we will discuss with MND what is possible after discussion with our auditors.

Mdm Speaker, the AG, in his report under section 3(2)(d), highlighted a lapse in internal controls with the possible effect of risking the loss of valuables and incurring unnecessary expenditure, as well as wrong payments for goods and services. In my following speech, I will speak on existing measures that have already been set in place to ensure that public monies are spent and utilised in the most appropriate and cost-effective manner. In doing so, I will elaborate on the points realised and substantiated by my colleague, Ms Sylvia Lim.

In AHPETC, we have in place several Committees to look into the different operational aspects of the Town Council, one of which is known as Estate and Community Liaison Committee (ECLC). Formed in 2012, this Committee is made up of a Chairman, elected Town Councillors and other members appointed by the elected Councillors. This Committee works closely with the Estate teams in the Town Council made up of property managers and property officers. The key purpose of this Committee is to advise on estate maintenance and

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improvements. This Committee that I chair meets on a monthly basis.

With the above in mind, please allow me to run through the procedures that are in place to consider any ad hoc or project-based repairs and/or improvements, such as Repair and Redecoration Works (R&R) and the Neighbourhood Renewal Programme (NRP).

The Estate Team made up of property managers and property officers, after consultation with the relevant Members of Parliament, will table proposals that pertain and relate to estate improvements at the monthly meeting. These proposals, divided in accordance with the respective wards or division that they belong to, will be discussed and deliberated on before any approval is granted. The entire process entails a proper and detailed account of the problem at hand, the rationale behind the works, the costs involved and the various standards obtained. Pertinent points of discussion often include whether a particular project, if necessary, is cost-effective and benefits the most number of residents.

Mdm Speaker, in the event that doubt arises, the ECLC Chairman and the Member of Parliament of that affected ward would conduct a site inspection, together with the Estate Team involved. At times, the Chairman of the Town Council, Ms Sylvia Lim, will also be present to advise and supervise the work. Thereafter, the matter will be further discussed at the next earliest ECLC meeting for an outcome.

In 2013, to further enhance the monitoring and scrutinisation process, another layer of checks was put in place. The ECLC Chairman, the Town Council Chairman and the divisional Member of Parliament are required to attend consultants' meetings for all ad hoc or project-based work. The proposals and the details of proposals, such as the use of materials, the quality of the workmanship, the cost-effective nature of the project and the maintenance value of the finished project, would be thoroughly deliberated, taking into consideration the maintenance expenses required over the long term. It is only after approval has been obtained at the consultants' meeting level would a particular item be proposed to the ECLC for consideration and deliberations.

Mdm Speaker, there are, indeed, areas that the Town Council and elected Councillors can further work on and improve upon. There should be greater safeguards that we can put in place to ensure greater accountability in the use of public monies. We have been honest in dealing with the lapses as highlighted in the AGO report and, as I have illustrated above, at present, there is a rigorous process in scrutinising proposals to ensure we are prudent in our expenditure.

The Town Council, together with the elected Councillors, does not take the public funds for granted and we will continue to exercise prudence in managing AHPETC and, at the same

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time, continue to serve our constituents to the best of our abilties. Madam, in Malay, please.

(In Malay): [Please refer to Vernacular Speech.] Madam, the Workers' Party supports the Motion. As a responsible and rational Party, we firmly uphold the principles of transparency and accountability in all that we do.

Throughout the audit, which took almost one year, we had cooperated with the AGO by providing them with all the documents and information as best as we could, even though certain documents revealed our mistakes and lapses. All these were done on the basis of transparency and accountability.

Madam, this Motion expresses concern over several aspects of AHPETC's accounting and record-keeping systems. We, the Members of Parliament of Aljunied, Hougang and Punggol East, are very concerned with the issues raised. We would like to state that some of the issues reported have been managed and corrected, while the rest are undergoing corrective actions and more time will be needed.

We suggest that the general public refer to the appendices contained in the AGO report about the steps that have been taken and are being taken by the Town Council to manage these issues.

Madam, although the audit was conducted for almost a year, AGO, however, did not find any basis that raise suspicions about the possibility of any misuse or loss of monies. Although there are lapses mentioned, the residents' interests are, nonetheless, not affected.

Finally, my fellow Members of Parliament and I would like to state our deepest gratitude to the residents of Aljunied, Hougang and Punggol East in particular and to Singaporeans in general, for their concern and support in this issue. With the trust placed upon us, despite the many challenges that we have to overcome, we, the Members of Parliament from the Workers' Party, will serve as best as we can to fulfil the needs of our residents. God willing.

Mdm Speaker, may I have your permission to speak in Mandarin?

(In Mandarin): [Please refer to Vernacular Speech.] In the last year or so, there was much discussion over the issue of AHPETC's financial situation and management efficiency, something that the people and media are concerned about. Now, questions and doubts over

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this issue are being cleared with the release of the AGO report. The operation of the Town Councils is about people's livelihood. Hence, MND must raise this issue in Parliament. I sincerely hope that, in this august chamber, we can find out where the problem lies and improve the Town Council's management and efficiency and clear people's doubts.

First, please allow me to explain the sequence of events so that we have a complete picture. During the 2011 election, the Workers' Party's slogan was to build a First-World Parliament. WP emphasised then that the benefit of a First-world Parliament was for the public to better scrutinise the policies, strengthen accountability and transparency of the Government. This slogan received support from the people of Aljunied GRC.

After the election, WP promised that they would do their best to manage the Aljunied-Hougang Town Council. In 2012, during the Hougang by-election, Ms Sylvia Lim, a Member of Aljunied GRC, emphasised that WP had a dedicated and experienced management team and that WP did a good job in managing Hougang Town Council before. Hence, they had the confidence to run Aljunied-Hougang Town Council well. During the 2013 Punggol East by-election, Mr Chen Show Mao, also a Member of Aljunied GRC, said WP would manage the Town Council in a proper and responsible manner. Then WP candidate Ms Lee Li Lian, too, said that she herself also had the expertise and experience in Town Council management, hence, they had the ability to manage the Town Council well. During this period, WP Members of Parliament frequently criticised the Government for lacking accountability and transparency and, at the same time, constantly emphasised how able and dedicated the WP team was.

Besides emphasising their own Town Council management ability, WP also targeted Town Councils managed by the PAP. At the Punggol East by-election rally, Ms Lim, as Chairman of the WP-run Town Council, revealed that when setting up the Aljunied-Hougang Town Council after winning the election, they discovered the dealings between PAP Town Councils and the company AIM. Ms Lim questioned that, for PAP-run Town Councils to sell a management system developed with public money to a PAP-linked company, was it in the public interest? She implied that this could create nepotism. Mr Pritam Singh, Deputy Chairman of the WP-run Town Council, also raised a series of questions. He said that for the first time in history, people had found out there were PAP-owned companies and Singaporeans wanted to know how many companies the PAP owned in Singapore and overseas. What do these companies do, who are the directors? WP Members of Parliament sounded very eloquent and righteous over this AIM issue. Maybe this is because when you care deeply, you also criticise strongly?

The PAP has explained in Parliament in detail over the questions WP raised. And because of this, the Government has also launched a formal investigation over the AIM transactions. The investigation showed that the AIM service did not harm residents' interest

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whatsoever; on the contrary, by providing services to 14 Town Councils, it achieved economies of scale and brought benefits to the residents. Minister for National Development Mr Khaw Boon Wan also pointed out that the PAP only had one company, which was AIM, whose purpose was to provide computer management services to 14 PAP Town Councils. Because the WP has taken a firm stand over the AIM issue and shown strong resolve of accountability, people felt that the slogan of building a First-world Parliament was not merely a slogan but a political vision.

The wheels of history keep rolling forward and things change all the time. While the memory of the AIM debate is still fresh in our mind, today we are here again discussing the Town Council management issue. However, this time round, it is the WP-run AHPETC that is in the spotlight and the situation is far worse. For the second consecutive year, the independent auditor appointed by the Town Council themselves issued a Disclaimer of Opinion over the Town Council's financial report. It is very rare for an auditor to do that. MND took this matter seriously and openly expressed its concerns. Deputy Prime Minister and Minister for Finance Mr Tharman Shanmugaratnam, at the request of Minister Khaw, instructed the AGO to audit AHPETC's last financial year's accounts. After a year's work, the AGO report was finally released a few days ago.

The AGO report showed that there were five major areas of lapses in AHPETC: first, it did not transfer monies into its Sinking Fund as required by law; second, it had inadequate oversight of related-party transactions; third, it lacks a system to monitor S&CC arrears; fourth, there were lapses in internal controls and procurement; fifth, there were no proper document keeping and safeguards. Minister Khaw just now moved a Motion regarding this report to strengthen the legislative framework and oversight of Town Councils. It is very appropriate.

When dealing with the AIM issue, the Government took it seriously and did not evade the questions raised by the WP. Now, the discussion focus is on the WP-run Town Council, the Government will treat it equally and take the same stance and attitude. This is because the incident is not just about the financial management, oversight and efficiency of the WP-run AHPETC, it also serves as an alarm to all other Town Councils, be they run by the ruling party or the opposition. The management of the Town Councils involves large amounts of public money and concerns the people's interests, therefore, it cannot be taken lightly.

The report showed that there were five major areas of lapses in the management and administration of AHPETC. Overall, I think two particular points demand special attention. First, how is the quality of the AHPETC management team? If the quality is good, then there should not have been so many lapses in compliance and oversight. This is in stark contrast to the WP claim earlier that their team was very competent, experienced and dedicated! Although, for the short term, these lapses in financial management and oversight will not

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impact the daily operations, such as cleaning, trash clearing and maintenance, if they are left unsolved, they will accumulate and eventually get out of hand; the consequence can be dire and will affect the residents' interests negatively.

Second, AHPETC did not properly manage the conflicts of interests brought about by key TC officers being directors or shareholders of other companies. The report discovered that the Secretary of AHPETC is also the owner of the company that provides EMSU to the Town Council; and the Secretary, General Manager and the two Deputy General Managers are also the directors or shareholders of the Managing Agent appointed by the Town Council. The General Manager and the Secretary had, on behalf of the MA, submitted 84 invoices worth $6.61 million to the Town Council. Among them, 11 invoices worth $1.69 million were verified by the General Manager and nine invoices worth $260,000 were verified by the Deputy General Manager. Payment of all these invoices was subsequently approved by the General Manager.

If the one who issues the invoice and the one who verifies and approves the payment are the same person, then it is very hard to say the Town Council is making a clear distinction between personal and public interests. Any professional company or organisation of a decent size would try to avoid, even prevent, the conflict of interests between their staff and the contractor. The public would hope WP to have a mechanism to mitigate and deal with such conflicts, and to prevent nepotism. I am very pleased to hear Ms Lim's promise just now that, going forward, they will correct all the shortcomings. This is a positive development! This was also the key point the WP had raised during the AIM saga.

In addition, the report also pointed out that there was insufficient disclosure and transparency in the Town Council's management. For example, the relationship between the Secretary, the General Manager and the Managing Agent was not recorded in the minutes of the Town Council's meetings, hence, there are no documents to show that prior to signing the contract with the MA, the Town Council had taken into account the potential conflict of interests and made any provisions to prevent corruption.

The Town Council did not, according to the Town Councils Act, record and safeguard documents properly. Hence, they could not produce relevant accounting documents to the independent auditor appointed by the Town Council, resulting in two consecutive years of "Disclaimer of Opinion" by the auditor. If this is a listed company, this kind of financial statement would be considered as seriously flawed and the company directors and the management would have to resign or be sacked.

After the report was released, many experts, academia and even former Nominated Members of Parliament have expressed their views. Overall, they believe that the five areas of lapses are very serious and should be addressed. These are all industry experts whose

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professional views cannot be easily ignored.

This incident highlighted that, with regard to the accountability of Town Council managements, the Government should take more proactive actions, strengthen the laws to empower relevant Government agencies and ensure good governance in all Town Councils. When the Town Council is at fault, it should be held accountable, be it run by the ruling party or the opposition. The current Town Councils Act does not allow this. MND has realised this and the Minister is moving this Motion to review the relevant laws to strengthen oversight and improve Town Councils' governance.

According to Lianhe Wanbao's report on Monday, Mr Low Thia Khiang had earlier said in an interview that, "the fact that the Town Council did not meet the standard in terms of S&CC arrears and governance did not affect the Town Council's operation and services. There is no need for people to worry." People cannot help but to think of the time when the WP was lashing out at AIM. It actually did not affect the Town Council's daily operations and services, but why then was the WP so concerned and bombarding the PAP Town Councils? Now, it is the WP Town Council that is being questioned, but you tell the residents not to worry. I wonder how the people will feel about this. Let us look at it from another angle and say it is a PAP Town Council that has made the five mistakes listed in the report and the person in charge of the PAP Town Council had said, "Do not worry, it is really nothing. Relax!" Will the WP accept this explanation? Will the people accept it?

One must walk the talk. I think this is a question of integrity and moral values, as well as a political one. Good political competition should be based on reason and morality. Only with that can we have clean politics and the country can progress.

It was recorded in the Analects' chapter Xian Wen that Zilu once asked Confucius what the way of the gentleman was. Confucius said, "To cultivate oneself so as to be proper." Zilu asked further, "Is this good enough?" Confucius said, "To cultivate oneself so as to make others peaceful." Zilu asked again, "So, that's it"? Confucius said, "To cultivate oneself so as to make the whole world peaceful." In "Great Learning", it was summarised as "cultivate oneself, manage the family, govern the country and attain world peace." If you do not cultivate yourself, your family would not be at peace; if families are in disarray, the country will be in a mess, how can you have a First-World Parliament then?

As Members of Parliament, representing the voice of the people, we should hold high standards for ourselves. This is our duty. I am not saying we should try to be like Confucius and be a saint. What I mean is, without self-cultivation, our democratic politics will have no content and morals, and our country will not develop in a healthy manner.

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Talking about this, I remembered Aljunied GRC Member of Parliament Mr Chen Show Mao's maiden speech in Parliament in 2011, which had left a deep impression on me. Allow me to quote: "The reign of Zhenguan, the golden age of enlightened rule in Chinese history, was not characterised by a "one-man-court" that brooked no dissension. There was Weizheng who was famous for being unafraid to speak hard truths in admonitions that caused offence to the Emperor Tang Taizong. Without either, there would not be the golden age of Zhenguan. In this Twelfth Parliament, I hope a wise ruling party can be Tang Taizong and we can be Weizheng. Together, we can work to usher in a period of prosperity and peace for the nation, not an age of domineering leaders ruling over a petty people living in submission." I remember I praised his speech in Parliament and said his words had brought in some fresh air. I also said then we should give him more applause for that. In my concluding speech then, I emphasised that, "since MP Chen is using Wei Zheng as an example that he would like to emulate, when his view is different from that of his party, I hope he will be able to look at the big picture and express his view, and not be a 'yes-man' to his party."

With regard to this WP Town Council issue, where the accounts are in a mess and there are inadequate transparency and lapses in governance, Mr Chen has not said anything at any public forum yet. Has he become a member of the "One-Man-Court" and a blind follower of his party? Fortunately, I saw Mr Chen's name on today's speakers' list and I look forward to Mr Chen's views on the whole incident.

Mr Chen is a very experienced top lawyer and was once in charge of several companies' public listing projects worth tens of billions of dollars. He should have his independent views on whether the Town Council is managed in a transparent, fair and professional way. Thinking back to Mr Chen's words in 2011, they sounded so righteous and powerful. I urge Mr Chen, in the fearless spirit of Wei Zheng, to express his unbiased, professional and independent views on this issue. Otherwise, it will give people the impression that his words are not matching his deeds!

Thank you, Mdm Speaker, for giving me the opportunity to speak. Again, I support the Motion moved by Minister Khaw.

(In Mandarin): [Please refer to Vernacular Speech.] Mdm Speaker, with regard to the AGO's report, AHPETC has given its formal written reply. In response, the AG has made further comments. Responses upon responses are recorded in the report. If you wish to have an accurate assessment of the matter, I hope you will find time to read the report and decide whether the Town Council has provided reasons or mere

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excuses.

Now that the issues, responses and responses to the responses have all been published, I, nevertheless, wish to speak. This is because AHPETC residents have entrusted the Town Council to us and we have the responsibility to do our job well and be accountable to them.

I would like to clarify a few points on related-party transactions and offer my views.

A town council basically comprises a group of residents and their local Members of Parliament; they manage the common areas in HDB estates, such as the void decks and common corridors, and collect from the residents S&CC for the cleaning and maintenance of the common areas. This is somewhat similar to the functions of management committees of private condominiums and, like them, the majority of Town Councils in Singapore appoint external vendors to provide requisite services, such as cleaning and maintenance, as well as emergency lift services.

Among these services, the most important is for the management of the Town Council. The company that provides such management services is called the Managing Agent of the Town Council.

Once successfully appointed, the Managing Agent will typically appoint its senior management staff to accept the appointment by the town council as the Town Council's secretary, general manager and other key officers. This is also how we manage AHPETC.

One consequence is, however, that transactions between the Town Council and its Managing Agent can become related-party transactions.

The AG indicated in the report that related-party transactions are not against the law, but need to be disclosed. To whom should they be disclosed? A few examples are given. Back when the Town Council was discussing whether it should enter into a new contract with the Managing Agent, a written disclosure should have been provided to Town Councillors who were to make the decision, to notify them of the relationships between the parties of this related-party transaction. As the Chairman of the Town Council reported earlier: we accept the suggestion; it is good practice to provide such formal written disclosure. She also pointed out that the Town Councillors who were to approve the new contract were the same ones who approved the initial contract a year earlier: they were familiar with the Managing Agent – how it was established and its relationship with the Town Council after it was appointed. These were the same Town Councillors. We are now talking about contract renewal; the Town Councillors were familiar with the Managing Agent from when the contract was signed initially. It does not mean that the Town Council could not have provided written disclosure

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to the Town Councillors: we will continue to work hard in this respect.

Second, to whom else should the disclosure be made? The related-party transactions should also be stated in the financial statements of the Town Council. As our Chairman reported, the Town Council is not against the disclosure. It only hopes to have more standard guidance on the disclosure requirement and under what circumstances: why do you disclose but I do not; why did I not have to disclose in the past but need to do so now? The Town Council is not against disclosure and is happy to comply and would welcome guidance on the relevant form of disclosure.

The AGO report referred to 84 payments made to related parties within the year. Most of these payments – 96% of the total sum involved – were amounts payable under the relevant contracts. In other words, important terms, such as the payable rate, frequency of payment and mode of payment, had already been determined in the contracts signed earlier between the Town Council and the service providers.

To appoint an external vendor as the managing agent means you outsource the management and administration functions. However, while management can be outsourced, supervision cannot be outsourced.

The Chairman of the Town Council has reported that since September 2011, soon after the takeover of the Town Council, all cheques issued to the Managing Agent are required to be co-signed by the Chairman or Vice Chairmen, in addition to signatures of the Town Council's officers. In other words, all payments must be approved by the Chairman or the Vice Chairmen. None of the Secretary, the General Manager or any other Town Council officer is able to request for and approve the payment all on his or her own. The Chairman of the Town Council has reported that when the Chairman or Vice Chairmen approves the payments, it is based on certificates issued by architects or surveyors, computer reports or some other feedback. Thank you, Mdm Speaker, for allowing me to speak on this important topic.

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