Governance lapses by AHTC exposed millions in public funds to improper use, KPMG finds; AHTC says no fraudulent payments found

Independent auditor KPMG said on Nov 1, 2016, that failures in governance at Aljunied-Hougang Town Council (AHTC) exposed millions of dollars in public funds to improper use and application.
Independent auditor KPMG said on Nov 1, 2016, that failures in governance at Aljunied-Hougang Town Council (AHTC) exposed millions of dollars in public funds to improper use and application. PHOTO: TIFFANY GOH FOR THE STRAITS TIMES

SINGAPORE - Failures in governance at Aljunied-Hougang Town Council (AHTC) exposed millions of dollars in public funds to improper use and application, and could amount to criminal conduct if deliberate, independent auditor KPMG said in a report on the town council's accounts released on Tuesday (Nov 1).

Payments with a total value of at least $23 million were approved by town council members with a conflict of interest, raising questions on whether they were fully justified.

Improper payments totalling some $1.5 million were also identified, of which at least $600,000 ought to be recovered, KPMG added.

The 68-page report KPMG submitted to AHTC and the Housing Board on Monday (Oct 31) detailed how the Workers' Party-run town council, formerly known as Aljunied-Hougang-Punggol East Town Council (AHPETC) was exposed to serious conflicts of interest.


SOURCE: KPMG

The direct owners of two companies appointed as its managing agent, as well as providers of essential maintenance services, held key management and financial control positions in the town council at the same time. The two companies are FM Solutions and Services (FMSS) and FM Solutions and Integrated Services (FMSI).

For instance, six shareholders of FM Solutions and Services (FMSS), which from 2011 to 2015 was engaged by the town council to be its managing agent and provider of essential maintenance services, held various positions in the town council during that period, including the posts of secretary, general manager and finance manager.

This meant that FMSS shareholders working in the town council effectively approved and made payments to themselves when they paid FMSS, said KPMG, adding that payments totalling $23,299,483 were approved by people in conflicting positions.

The report by KPMG is part of its ongoing audit of AHTC following significant lapses in governance flagged by its own auditors as well as by the Auditor-General's Office (AGO) in a special report in February last year, which was debated in Parliament.

The town council appointed KPMG to look into its books following an order by the Court of Appeal for AHTC to appoint a Big Four accounting firm to establish whether any past payments it made were improper and ensure it complied with the laws. The court also directed the accountants to submit monthly progress reports to HDB.

In the latest report on past payments, KPMG said the owners of FMSS have a profit motive, which goes against their work in the town council, which serves residents.

"Their motive to serve the town council and their profit motive from their personal financial interests were therefore in conflict," the report said.

The report also listed the improper payments the town council made to FMSS and FMSI, which should be recovered.

One example is a sum of $8,990, which the town council paid to FMSS for overtime claims, when the managing agent contract states that it should provide overtime and all direct and indirect costs as required for them to carry out their services, KPMG noted.

This means the sum should not have been paid out and should have been considered as part of the standard management fees payable by the town council, KPMG added.

Morever, said KPMG, the town council was "unable to provide evidence that the overtime was indeed incurred, or if incurred, whether it was properly incurred so as to justify the above payments".

A total of $608,911 was paid to FMSS purportedly for project management fees, but which were actually covered by managing agent fees paid by the town council, KPMG found, saying this amount ought to be recovered.

Improper payments were also made to suppliers, consultants and contractors, it added.

KPMG said: "The lack of discipline in financial operations and record-keeping results in incomplete information to support payments... and is such that we are unable to conclude whether the improper payments identified in this report are exhaustive and on the complete quantum of improper payments that ought to be recovered."

The failed control environment ought not to have been permitted by AHTC, it said, noting that given town councillors hold "fiduciary duties and responsibilities in respect of public funds entrusted to the town council", they "bear a personal and collective responsibility for improper payments enabled or permitted by such a flawed system".

KPMG added: "While our work was not focussed on identifying potential criminal acts arising from the issues we observed, we are advised that, had the shortcomings... been committed deliberately, they could amount to criminal conduct, the implications of which the Town Council should consider."

AHTC, in a statement on Tuesday evening, said it is studying the report in detail.

The statement noted that KPMG’s "broad definition of improper payment" includes payments which are in breach of Town Council’s internal control procedures and policies. "KPMG acknowledged that while some payments were deemed to be made improperly, they do not appear to have an effect on the legitimacy of the underlying payments, hence, may not necessarily be recoverable."