Aljunied-Hougang Town Council (AHTC) could have avoided paying $2.8 million if it had worked with lower-priced consultants, instead of engaging the pricier option without any reasonable justification, auditor KPMG said in its latest report.
Such actions could be a breach of the Town Council Financial Rules, KPMG added.
Apart from making improper payments to two companies whose shareholders worked in the town council, AHTC, formerly Aljunied- Hougang-Punggol East Town Council, also made improper payments to third-party consultants, suppliers and contractors, it said.
KPMG worked out that these amounted to about $5.4 million in all, with $2.4 million in expenditures incurred without authority, in a breach of the rules and its own internal controls.
"Such improper payments stem from a lack of discipline in the town council's financial operations and record-keeping, reflecting the failed control environment," KPMG said.
It added that the town council should recover what it can of its losses from the recipients of these improper payments.
On the higher-priced consultant, KPMG said the town council had appointed two consultants, A and B, through a tender process and placed them on a panel to work on certain projects at a fixed rate.
From time to time, both were engaged to provide services.
KPMG looked at 10 of the projects that Consultant A did for the town council, and found that it charged a higher fee than Consultant B for seven of the projects.
Yet "reasons for appointing Consultant A and not Consultant B for these projects were not documented at the relevant time", it added.
KPMG noted the town council had informed it that Consultant B was working on two Neighbourhood Renewal Programme projects, and progress was deemed to be "slow-moving". But apart from the town council's meeting minutes in February 2013 stating that Consultant B was slightly behind schedule for a project at the pre-tender stage, there were no further discussions of its poor performance in later meetings, said KPMG.
AHTC also did not have documentation to support the view that Consultant B was less favourable. And there was "no meaningful panel" to choose the consultants from, as it had only two options, KPMG said.
But AHTC disagreed with the auditor's view that this constituted an improper payment, adding that it has sought legal advice. It said both consultants were appointed to its panel following an open tender.
The Town Council Financial Rules should not apply to such a situation, AHTC added, as it was not going out to buy new services, but was instructing work under contracts that had been entered into.