The Workers' Party (WP)-led town council was so "obviously concerned" about a major accounting lapse by its managing agent that it withheld $250,000 in fees, a senior KPMG auditor said yesterday.
Managing agent FM Solutions & Services (FMSS) had processed $60 million in payments, mostly for utility bills, through manual journal entries, said KPMG executive director Owen Hawkes.
This highly irregular method, he noted, "effectively bypassed controls" which would have been in place if FMSS had gone through accounts payable instead, representing a "significant control weakness".
"When we discussed this with the (Aljunied-Hougang Town Council), they appeared to be obviously concerned... It was pretty clear at the time they were not happy," he said of the $250,000 in fees which AHTC withheld after KPMG highlighted the problem in its analysis of the books.
The audit firm was tasked to look into AHTC's books after a special audit by the Auditor-General's Office flagged several lapses.
Mr Hawkes was being cross-examined by Mr Leslie Netto, who is defending FMSS and its majority owners How Weng Fan and her late husband Danny Loh.
Yesterday, Mr Netto insisted that AHTC's town councillors, including WP MPs Low Thia Khiang and Sylvia Lim who are also defendants in the suit, were happy with the service provided by FMSS.
"I think we will have to listen to the MPs when they come on the stand. I think you will see they were happy," Mr Netto said on day five of a multimillion-dollar civil suit to recover alleged excess payments to FMSS.
He later said of the withheld fee that there was no such thing as a "perfect contract".
Mr Hawkes replied: "First, I wouldn't say that $250,000 is a minor amount of money. Second, it is the proposition that there was no unhappiness that I am challenging."
Mr Netto also sought to prove that FMSS had delivered on its obligations.
He said multiple reports - such as government-issued town council report cards - showed that under the management of FMSS, AHTC had consistently kept the estate clean and maintained its lifts well.
But Mr Hawkes said his focus was to review the town council's financial governance and controls, not estate cleanliness.
"Having been to Hougang many, many times, it is not my place to suggest it is some sort of Mad Max (dystopia)... It is a perfectly pleasant area of the country. But how the town council manages itself, rather than things like maintenance, is my area of concern," he said.
Mr Netto also took issue with KPMG's judgment of FMSS' accounting problems, noting that the firm had to struggle without a proper computerised management system. This happened after an IT firm, owned by former People's Action Party MPs, withdrew its software after both sides could not agree on terms following the 2011 General Election.
But Mr Hawkes said: "While I accept that implementing a new system is not an easy task, I don't think that five years later, the accounting system should still be in a problematic state."
In wrapping up his arguments, Mr Netto also sought to show that Ms How wanted to be helpful and give KPMG more information and documents for it to piece together its report.
He noted that she sent a letter to Mr Hawkes in October 2016, taking issue with KPMG's draft report on alleged improper payments, and asking for more than the four business days FMSS was given to respond. But she did not receive a response, he added.
When he was later cross-examined by AHTC lawyer David Chan, Mr Hawkes explained that his firm had contacted FMSS in advance, requesting interviews and access to certain documents. This request was not met.
But several discussions with Ms How, such as two that took place over the phone, were factored into the KPMG report, he added.