National Development Minister Khaw Boon Wan said the Workers' Party-run Aljunied-Hougang-Punggol East Town Council (AHPETC) was losing residents' money because it was rewarding its supporters and friends excessively.
His comments came a day after his ministry produced figures showing that AHPETC's former managing agent, FM Solutions and Services (FMSS), had been "grossly profiteering" off its sole client.
In a strongly worded reply, WP chairman Sylvia Lim said the town council did not overpay FMSS.
Weighing in on the issue yesterday, Mr Khaw said: "I was surprised to read that the Workers' Party found no overpayment. Put it another way, $3 million a year is fine."
He called the FMSS contract a "very rich one", able to make so much money that it could profit even after paying the shareholders and directors more than $3 million a year.
Mr Khaw zeroed in on whether the $3 million figure was reasonable, asking if that was still the amount being paid to the town council's current management.
After the FMSS contract expired last month and a three-week tender for the job attracted no bids, the WP stepped in to manage its town council directly.
"The WP has to recruit its own general manager, its own secretary. Is it also rewarding them $3 million a year, since it thinks $3 million is fine? If not, then how do you explain that there was no overpayment?
"The point is: Why are they making such an arrangement to reward their supporters and friends?" Mr Khaw told reporters on the sidelines of a community event at the Sree Narayana Mission Home for the Aged Sick in Yishun.
The WP's motives have to be questioned, said the minister.
"All I know is that the outcome is a very sad one for the Aljunied GRC residents," he said.
He also rebutted criticisms that the timing of the Ministry of National Development's (MND) press statement was politically motivated as it was released two weeks before Polling Day.
"There is nothing unusual about the timing," said Mr Khaw, adding that the timeline of events had been explained in the MND statement.
In fact, the ministry acted right after it received AHPETC's statement last month and realised that AHPETC's deputy general manager Yeo Soon Fei had approved $2.1 million in payments to FMSS, which he partly owns.
MND wrote to the Accounting and Corporate Regulatory Authority (Acra) a couple of days later to ask if it had any concerns about the quality of FMSS' accounts and the audit process.
Acra then had to notify FMSS' auditor and request documents from it, a process which took time.
The MND statement came two days after Acra submitted its findings, said Mr Khaw.