SINGAPORE - Auditors of Workers' Party-run Aljunied-Hougang Town Council (AHTC) have found "pervasive control failures" in its accounts and work processes over the past five years.
These weaknesses cover key areas of governance, financial control, financial reporting, procurement and records management.
In a report on Wednesday (July 20), KPMG also found that the town council's management lapses went beyond individual issues. They were a systemic problem.
The auditors recommended that town councillors "reset the tone at the top of AHTC" to emphasise competence and accountability.
The report, released by AHTC on Wednesday night, is the fourth monthly report by KPMG, which the town council had hired to look into its books following significant lapses in governance flagged by its own auditors and the Auditor-General's Office in a special audit report in February 2015.
It marks the completion of KPMG's recommendations on steps AHTC has to take to set right weaknesses flagged in those earlier reports.
AHTC chairman Pritam Singh said the town council accepts all the recommendations in full, and its MPs "will immediately lead an exercise to review the key areas of governance, financial control, financial reporting, procurement and records management".
On Thursday night, HDB noted “with grave concern” the findings, including the town council’s slow progress in remedying the lapses after “a long and protracted process for AHTC to appoint an independent accountant following orders by the Court of Appeal.”
“It is imperative that AHTC takes immediate steps to reset its tone from the very top,’’ it added.
“As large sums of public monies are at stake, AHTC also needs to account to its residents and the public whether any monies have been lost as a result of these lapses,” it said.
KPMG will also communicate directly with accountants of Pasir Ris-Punggol Town Council as required by the Court of Appeal, HDB noted. This concerns the transfer of funds for Punggol East, which WP lost in last year’s general election.
“We look forward to AHTC’s fullest cooperation in this review... (to) ensure that public monies are safeguarded,” said the HDB.
More lapses identified
In its July report, KPMG identified another 70 "control failures".
These are on top of the 115 failures already found by the Auditor-General's Office and the town council's statutory auditors last year.
KPMG estimates that at the current rate of progress, setting these weaknesses right will take at least 18 months.
Among the most glaring lapses uncovered by KPMG was AHTC's use of 18 temporary clearing accounts, that together contained a total of more than one million transactions at a value of over $648,000.
KPMG said such accounts should only be used on a short-term basis, but that investigation and clearance of these transactions - some of which date prior to 2011 - was not done prior to their review.
Clearing these transactions is now a "major task" that KPMG estimates will take AHTC a year to resolve.
Another major lapse it found was extensive use of manual journal entries to record payments to third parties, which avoid records being entered into accounts payable and thus circumvents financial controls.
There were over 48,500 of such manual entries used to record payments of more than S$60 million from 2011 to 2015.
"This highly irregular shortcut makes effective oversight of payments by the Finance Department practically impossible," said the report. "Such large-scale use of this practice raises questions about the management of AHTC's financial function."
The "unwarranted and extensive" use of this shortcut to bypass accounts payable indicates "a lack of accountability in applying basic financial controls principles", and also makes it easier for duplicate or fictitious payments to be made without being detected, KPMG said.
But there were multiple problems with the monitoring of these controls.
KPMG found that AHTC's accounts payable module was not regularly reviewed, and might contain inaccuracies which could be exploited to initiate or conceal fraudulent payments.
Among the payables outstanding for more than three years, KPMG found a 2012 vendor invoice for $52,000 that was recorded twice. No investigations were carried out for 48 payable accounts totalling over $105,000.
KPMG said that even if all the control failures it identified are remedied, AHTC's compliance with the Town Council Act "will not be sustainable" unless Town Councillors and senior management take the lead by defining accountability for lapses and engaging suitable vendors and employees.
It said pointedly that while some AHTC representatives have been receptive to its recommendations, some members of the town council management regarded the problems as legacy issues.
"It appeared to us, though, that parts of management see the control failures as requiring short-term fixes and historical explanation," said the report.
Approaching the lapses "narrowly from a perspective of fixing historical issues as they are identified" risks undermining future compliance by failing to plug today's shortfalls, it added.
In a statement, AHTC chairman Pritam Singh said AHTC will review the work processes of the Town Council to strengthen controls. It has also called a tender for a new town council accounting system, and will appoint an internal auditor to ensure management, governance and control processes are working.
In the meantime, KPMG's work on a review of past payments continues, and a separate report is expected to be issued on or around Aug 31.