AHTC lawsuits

Spotlight on 'improper payments' and whether they must be recovered

Most were not improper and even if they were, they were for services used, says WP lawyer

KPMG executive director Owen Hawkes said he never referred to "wrongful payment" - the language used was "improper payment", and the report did not say if the money should be recovered or not.
KPMG executive director Owen Hawkes said he never referred to "wrongful payment" - the language used was "improper payment", and the report did not say if the money should be recovered or not.ST PHOTO: MARK CHEONG

The bulk of the $1.5 million in payments made by a Workers' Party-led town council to its managing agent were not improper, and should not be recovered even if they were because they were for services the town council used.

This argument was laid out yesterday by Senior Counsel Chelva Rajah, the lawyer defending five WP town councillors in a multimillion-dollar civil suit over an alleged breach of fiduciary duties.

On the second day of cross-examination, Mr Rajah pressed KPMG executive director Owen Hawkes on why he had classified almost $200,000 in payments to managing agent FM Solutions & Services (FMSS) and its related service provider, FM Solutions and Integrated Services (FMSI), as "unsupported by certifications of services received or contracts".

KPMG was appointed to look into Aljunied-Hougang Town Council's (AHTC) books after the Auditor-General's Office found significant governance lapses in a special audit.

Mr Rajah argued that some of these funds were paid out because FMSI had existing contracts with Hougang Town Council, which were naturally carried over to the new AHTC after the merger with Aljunied Town Council following the 2011 General Election.

Also, many of these payments were for services that had actually been rendered, such as those for emergency maintenance.

But Mr Hawkes said there was no documentation showing that these services were carried out satisfactorily. Neither was there any contract to define what "satisfactory service" would look like.

Mr Rajah said the town council's call logs were proof that cases were heard and responded to.

Mr Hawkes replied: "It is a call log, and I don't know what is your experience with call logs, but they are not 100 per cent with (seeing a case through)."

Later, Mr Rajah sought to determine if Mr Hawkes thought the payments should be recovered if services were provided satisfactorily.

Mr Hawkes said the documentation to prove that the services were carried out well was not there.

"I have never said this is a wrongful payment. The language is 'improper payment', made in breach of the Town Council Financial Rules... We don't say if it should be recovered or not recovered," he said.

Mr Rajah also took issue with KPMG classifying $80,000 in payments to FMSS as a breach of financial authority, as they were made without the co-signature of either the chairman or vice-chairman of the town council.


Mr Hawkes said those payments had breached standing instructions put in place by the town council to avoid a conflict of interest.

But after FMSS ceased to be the managing agent, there was no need for such co-signatures, said the town council.

Mr Hawkes said that while this did not violate town council financial rules, it went against the own standards AHTC had set for itself, and was thus improper.

Asked multiple times by Mr Rajah if he thought this money should be recovered, Mr Hawkes finally said: "It is not a yes or no.

"We are not saying that every amount in our table is to be re-covered, that is why part of the table says (the amount is) indeterminable."

In total, KPMG identified more than $1.5 million in payments as improper in its October 2016 report. Just over $600,000, it said, should be recovered. It could not determine if the remaining amount ought to be recovered.

Yesterday's cross-examination was a continuation of Monday's, when Mr Rajah homed in on KPMG's argument that FMSS received more than $1.2 million in extra payments, via a 3.5 per cent management fee levied on projects totalling more than $34 million.

The auditor believed that many of the projects were basic services, to be covered by a lump-sum fee.

But Mr Rajah had argued that such practices were also carried out by the town council's PAP predecessor. Also, the works were clearly complex, given their bill size.

Another issue raised yesterday was about a potential conflict of interest, given that FMSS majority shareholders How Weng Fan and Danny Loh were also general manager and secretary of AHTC.

Mr Rajah sought to establish that the previous general manager, Mr Jeffrey Chua of CPG Facilities Management, was also a shareholder of Downer EDI Limited - the main shareholding company of CPG.

The case continues today.

A version of this article appeared in the print edition of The Straits Times on October 10, 2018, with the headline 'Spotlight on 'improper payments' and whether they must be recovered'. Subscribe