The authorities have asked Aljunied-Hougang Town Council (AHTC), run by the Workers' Party, to take steps to recover improper payments that it made.
The Housing Board, in a letter to AHTC yesterday, also asked that it confirms within seven days that it will appoint a suitable third party to take steps on its behalf, "to recover the monies which have been lost".
These steps include taking legal action where necessary, the HDB said.
The Ministry of National Development (MND), parent ministry of the HDB, was similarly stern when it said: "To protect residents' interests, steps must be taken to recover the monies which have been lost, and to ensure that those who acted wrongfully are held to account."
Accounting firm KPMG, hired by AHTC to review its accounts, said that at least $23 million of payments were approved by town council members who had a conflict of interest. This included $1.5 million which AHTC paid to its then managing agent FM Solutions and Services (FMSS) and service provider FM Solutions and Integrated Services.
KPMG said that at least $624,621 paid to FMSS should be recovered.
It also said that if the payments were made intentionally, it could amount to criminal wrongdoing.
The MND said that given the concerns KPMG highlighted, the Government is considering what other steps are necessary.
These relate to "the way some of the town councillors have behaved, in dealing with public funds".
AHTC disagrees that most of the payments were improper.