Changes to the law on town councils to ensure public funds are managed properly are being finalised and should be ready by the year end, National Development Minister Lawrence Wong said yesterday.

The amendments to the Town Councils Act will, among other things, ensure that town councils have a "proper governance structure", he told reporters after a ministerial visit to Kebun Baru ward in Nee Soon GRC.

Mr Wong was responding to reporters' queries on what his ministry was doing after a report on the Workers' Party-run Aljunied-Hougang Town Council (AHTC) by independent auditor KPMG last week flagged "pervasive" control failures in AHTC's accounts and processes.

"All the more, the findings by the auditor give us the impetus to make sure that the Town Councils Act will be amended so that we can have a proper governance structure over the town councils," Mr Wong said.

"We have talked about this before, the legislative changes are being studied and are in the process of being finalised, and we hope to make the legislative changes by the end of the year."

The changes to the law have been in the works for some time.

In February last year, then National Development Minister Khaw Boon Wan said the changes would address weaknesses in the current regulatory framework.

Addressing Parliament during a debate on the Auditor-General's special report that month, which flagged major problems in the WP town council's finances, Mr Khaw said there was a need to ensure that proper systems, accountability and governance are in place to safeguard the interests of residents.

The amended Act, when passed by Parliament, will cover three key areas, he said. It will make clear that town councils must comply with the law and agencies enforcing it.

Governance and accountability will also be strengthened so town councils plan and use their finances in a sustainable way. The ministry will also have stronger regulatory oversight, with powers to get information and make investigations.

Currently, the Ministry of National Development has no power to compel town councils to give information and there are no penalties if a town council refuses to do so.

KPMG's latest report is part of its ongoing scrutiny of AHTC's governance and finances in the wake of the Auditor-General's report.

KPMG highlighted lapses over the past five years that span governance, financial control, procurement and records, among others, and said the AHTC management had failed to set the foundation for discipline for its internal workings.

These include highly irregular shortcuts used by AHTC to process $60 million worth of payments over five years. It also used "dummy" vendor codes for more than $270,000 worth of payments without naming suppliers.

These practices, KPMG noted, could have concealed duplicate or fraudulent payment.

On Saturday, Home Affairs and Law Minister K. Shanmugam criticised WP leaders for not showing integrity in managing their town council's finances and fixing lapses.

He urged its six elected MPs to come clean on millions in irregular payments in its "dark corners", which KPMG had flagged.

AHTC chairman Pritam Singh replied that KPMG's review of the town council's past payments is still ongoing, and a report is expected by the end of next month.

"AHTC will publish the past payments report," Mr Singh said, adding that the town council will take any necessary action after that.

Yesterday, Mr Wong said the auditor's findings were "a very serious matter" and he awaited AHTC's response. Some of the lapses "pertain to the culture of management, which has to change", he added.

"This is not the end of KPMG's findings because there are still more studies and reviews to be done, including the issue of past payments and whether they have been made properly," Mr Wong said.

"Their work is still ongoing but, clearly, there are very serious lapses surfacing. We will continue to await further recommendations from the auditor and we will monitor the matter very closely."