The manner in which Nanyang Polytechnic (NYP) managed transactions involving public funds with its subsidiary "reflects a disregard for financial controls and proper governance", the Auditor-General's Office (AGO) said yesterday.

NYP was one of 11 statutory boards audited for financial year 2015/16 by the AGO.

The public sector watchdog found that NYP did not have a proper governance framework for transactions with its subsidiary, Nanyang Polytechnic International.

Some members of NYP's board of governors with "vested interests" in the subsidiary were involved in making related decisions.

The board also approved a funding model more generous than that provided for in government instructions.

Also, by not charging market rates for the use of its premises, and by giving more funding than that approved by the board, NYP gave its subsidiary hidden subsidies and excess funds totalling $8.38 million from 2007 until March last year.

"Without a proper framework to manage conflict of interest, there was no assurance that decisions on transactions with its subsidiary were made in an objective and impartial manner," said the AGO.

Generous funding terms, excess funding and hidden subsidies lacked transparency and made it hard for the Government to assess the subsidiary's true financial performance and viability, it added.

The AGO flagged two other issues.

During an October 2014 event, NYP allowed the Nanyang Polytechnic Education Fund's name to be used to solicit $286,300 in donations for needy graduates - a purpose that was not authorised under the fund.

It also issued tax deduction receipts in the fund's name, and claimed and received matching grants of $429,500 from the Ministry of Education (MOE).

The AGO also did test checks on seven of NYP's revenue contracts and found lapses in two contracts worth $1.1 million, for a childcare centre and a canteen operator.

The lapses include failing to determine rental rates through market tests or professional valuation.

Nanyang Poly's response

NYP said in a statement yesterday that it acknowledged and accepted the findings of the AGO's report.

"We have commenced a detailed review of the areas highlighted to ensure that measures are put in place to effectively address the issues of concern," it added.

NYP also noted that some board members and staff were appointed to the subsidiary's board "to ensure alignment of objectives" between the polytechnic and the subsidiary. They do not receive separate director's fees.

"None of the decisions cited in the audit observations yielded personal gain for any of the individuals involved," it added.

Still, to avoid "a situation of actual or perceived conflict of interest", NYP will put in place a governance framework on the handling of transactions with subsidiaries.

In a separate statement, MOE - under which NYP falls as a statutory board - made similar points.

Nanyang Polytechnic International was set up to receive foreign visitors and take NYP's courses overseas, and all its profits belong to NYP, added MOE.

But it acknowledged the need for a proper governance framework and has instructed NYP to take immediate actions to put one in place.

In April this year, the polytechnic stopped funding its subsidiary and started charging it the market rate for the use of its premises.

The board of governors has been informed of the excess funding and NYP will seek its decision on what to do.

As for the donations, NYP is working with MOE and seeking donors' approval to use the funds to help needy current students instead.

It has also engaged a professional valuer to review rental rates for the childcare centre, and changed the tender process for canteens.