'Pervasive' lapses found in WP town council

Aljunied-Hougang Town Council's main office in Hougang Central. KPMG flagged six areas where the town council's control environment had failed to set the foundation for discipline and structure for its internal workings.
Aljunied-Hougang Town Council's main office in Hougang Central. KPMG flagged six areas where the town council's control environment had failed to set the foundation for discipline and structure for its internal workings.ST PHOTO: DESMOND FOO

Weaknesses cover key areas of governance, financial control and reporting, among others: KPMG

Auditors of the Workers' Party-run Aljunied-Hougang Town Council (AHTC) had harsh words for the way it was managed, saying they found "pervasive" control failures in its accounts and work processes over the past five years.

These weaknesses cover key areas of governance, financial control, financial reporting, procurement and records management, KPMG said in a report on Wednesday.

In all, KPMG flagged six areas where AHTC's control environment had failed to set the foundation for discipline and structure for its internal workings. These include the lack of communication and enforcement of integrity and ethical values. For instance, "highly irregular" methods were used to process over $60 million worth of payments, and temporary accounts used for more than one million transactions were not cleared swiftly.

 

Also, several payments were made using a dummy code that meant duplicate or fictitious payments could be made without being detected. The town council's audit committee also did not meet as often as it should to address the issues raised by AHTC auditors as well as the Auditor-General.

"There is an issue larger than the sum of individual lapses at AHTC," KPMG said in its report, which the Workers' Party (WP) released on Wednesday night.

  • Town council's 'irregular' procedures

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    “Highly irregular” methods were used to process over $60 million worth of payments.

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    Temporary accounts used for more than one million transactions were not cleared swiftly.

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    Several payments were made using a dummy code that meant duplicate or fictitious payments could be made without being detected.

  • 4

    Town council’s audit committee also did not meet as often as it should to address the issues raised by AHTC auditors as well as the Auditor-General..

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    AHTC also extensively used manual journal entries to record payments to third parties. There were over 48,500 such manual entries involving more than $60 million from 2011 to last year. This avoids records being entered into accounts payable, thus circumventing financial controls.

    KPMG said: “This highly irregular shortcut makes effective oversight of payments by the finance department practically impossible."

The lapses were a systemic problem and fixing them means town councillors have to "reset the tone at the top of AHTC" to emphasise competence and accountability.

KPMG estimated that the town council will take at least 18 months to rectify all the lapses and weaknesses that have been found.

AHTC chairman Pritam Singh said it accepts all the recommendations in full, and its MPs "will immediately lead an exercise to review" governance, controls and other key areas identified in the report.

Last night, the Housing Board noted "with grave concern" the findings, including the town council's slow progress in remedying the lapses after "a long and protracted process for AHTC to appoint an independent accountant following orders by the Court of Appeal".

"It is imperative that AHTC takes immediate steps to reset its tone from the very top," it added.

"As large sums of public monies are at stake, AHTC also needs to account to its residents and the public whether any monies have been lost as a result of these lapses," it said.

The monthly report by KPMG is its fourth on the state of AHTC, which hired it to look into its books following significant lapses in governance flagged by its own auditors and the Auditor-General in a special report in February last year.

The new report completes one part of KPMG's work, which is to identify where AHTC did not comply with the Town Council Act.

KPMG is now reviewing whether past payments AHTC made between 2011 - when it was formed - and last year were improper and need to be recovered.

KPMG will also communicate directly with accountants of Pasir Ris-Punggol Town Council as required by the Court of Appeal, the HDB noted. This concerns the transfer of funds for Punggol East, which WP lost in last year's General Election. "We look forward to AHTC's fullest cooperation in this review... (to) ensure that public monies are safeguarded," said the HDB.

In its report, KPMG also identified another 70 "control failures".

These are on top of the 115 failures already found by the Auditor- General's Office and the town council's statutory auditors. Among the most glaring lapses KPMG uncovered was AHTC's use of 18 temporary clearing accounts, which had contained a total of more than one million transactions valued at over $648,000. It is standard practice for transactions in such accounts to be cleared swiftly, but it was not done until after KPMG began its review.

AHTC also extensively used manual journal entries to record payments to third parties. This avoids records being entered into accounts payable, thus circumventing financial controls.

There were over 48,500 such manual entries involving more than $60 million from 2011 to last year.

KPMG said: "This highly irregular shortcut makes effective oversight of payments by the finance department practically impossible."

"Unwarranted and extensive" use of this shortcut indicates "a lack of accountability in applying basic financial controls principles". This makes it "easier for duplicate or fictitious payments to be made without being detected", KPMG said.

AHTC's procurement policies had also allowed the use of a "dummy" vendor code for refunds of tender deposits and other purposes.

Even if all the identified control failures are remedied, KPMG said AHTC's compliance with the Town Council Act "will not be sustainable" unless town councillors and senior management define accountability for lapses and engage suitable vendors and employees.

While some AHTC representatives were receptive to the recommendations, certain members of its management "see the control failures as requiring short-term fixes and historical explanation".

This risks undermining future compliance by failing to plug today's shortfalls, KPMG added.

AHTC's Mr Singh said it will review work processes to strengthen controls. It has also called a tender for a new accounting system, and will appoint an internal auditor.

A version of this article appeared in the print edition of The Straits Times on July 22, 2016, with the headline ''Pervasive' lapses found in WP town council'. Print Edition | Subscribe