SINGAPORE - In a report issued on Friday and made public on Monday, the Auditor-General's Office (AGO) highlights lapses in governance and compliance with the law by the Aljunied-Hougang-Punggol East Town Council (AHPETC), which is run by the Workers' Party.

Included in the report are AHPETC's reply to each of the five lapses. In some cases, the AGO responded to the town council's reply.

1. Lapses in governance of party-related transactions

The AGO said AHPETC could not provide any evidence to show it had properly evaluated the conflicts of interest before entering into contracts worth $25.9 million with its managing agent FM Solutions and Services (FMSS).

AHPETC's senior officers - secretary Danny Loh Chong Meng, general manager How Weng Fun, and deputy general managers Yeo Soon Fei and Johnson Lieow Chong Sern - are also directors and shareholders of FMSS.

In addition, Mr Loh is the sole proprietor of FM Solutions and Integrated Services (FMIS), hired by AHPETC to carry out lift rescue and maintenance services.

The AGO said AHPETC did not adequately manage the conflicts of interest that arose from these relationships.

In some cases, Ms How had issued payment claims as director of FMSS, and later certified these claims and approved the payment vouchers in her capacity as general manager of AHPETC.

In one such transaction involving an invoice issued in April 2012, the town council paid about $460,000 to FMSS. The cheque for the payment was signed by Mr Loh and Workers' Party chairman Sylvia Lim, who heads AHPETC.

The AGO said: "The key officers of AHPETC who had ownership interests in FMSS and at the same time performed a role for AHPETC in approving payments to FMSS were in clear conflicts of interests."

AHPETC should have in place processes to mitigate these conflicts. Disclosures and assesments of these conflicts should be recorded, for example, in the minutes of meetings, it added.

But AHPETC replied that it wanted to see "a consistent standard applied to all town councils on this matter".

The town council added that it is common practice to have management personnel of managing agents hold key positions in the town councils they manage.

It also suggested the AGO and Ministry of National Development "articulate" when managing agents and town councils are considered related parties, and the extent of disclosure required.

2. Lapses in management of Sinking Funds

The AGO said AHPETC failed to transfer monies to its Sinking Fund bank accounts several times.

Town councils are required to set aside a Sinking Fund for the improvement and long-term maintenance of properties.

The AGO also said AHPETC failed to make the required transfers to Sinking Fund bank accounts for the last three quarters of the financial year 2011/12.

While it made some transfers for the financial year 2012/13, these were late and short of the required amounts. In most instances, the transfers were made only after auditors' queries, it added.

There were other instances of non-compliance with the Town Councils Act, involving wrong use of money in Sinking Fund bank accounts.

Replying, AHPETC said the money meant for the Sinking Fund were still in the town council's bank accounts, except that it had been left in an Operating Fund account without being transferred.

Acknowledging that this complicates calculations and accounting processes, AHPETC said it will abide by the AGO's advice on transferring money meant for the Sinking Fund first, before making the relevant payments out of that bank account.

It said it has also corrected the mistake of recognising the Neighbourhood Renewal Programme as a Sinking Fund item. Such funds, the town council added, are now received and paid out of Operating Funds, as it should have been.

Among the improvements AHPETC says it will make in managing its Sinking Funds is that it will work with its IT system vendor to identify Sinking Fund items that attract GST. It would ease the calculation of GST refunds later from the Inland Revenue Authority of Singapore.

3. Lapses in management of arrears of services and conservancy charges

The town council did not have a system to monitor accurately the scale of the arrears of its services and conservancy (S&C) charges, said the AGO.

Inadequacies in its accounting system also meant AHPETC could not generate an "ageing analysis" of its S&C charges, and could not give its own auditors the information they required.

As such, "there is no assurance that AHPETC is able to monitor and manage its S&C arrears properly or present an accurate picture of arrears in its financial statements," said the AGO.

The AGO also discovered significant discrepancies between AHPETC's arrears reports submitted to the MND and the town council's own Finance and Investment Committee for March 2013.

This was not due to the different formats required for the reports, said the AGO.

There were also discrepancies in the numbers between AHPETC's reports to MND for March and April 2013, said the AGO, which indicated that one or both the reports were incorrect.

Replying, AHPETC said it was "hampered by a lack of historical data" needed for an ageing analysis.

The town council said this was confirmed by the IT vendor that was engaged by the town council when it was under the People's Action Party (PAP).

As for the erroneous reporting in April 2013, it was due to human error, said AHPETC.

Since it does not have a system to generate and format aggregated S&C arrears information in the format required by the MND, the town council's staff had to manually sort and count this information.

It was a mistake made during this process that led to the town council reporting inflated S&C arrears for April 2013.

AHPETC added that it is in the process of improving its system.

4. Inadequacies in record management and accounting system

The AGO said AHPETC did not have a proper record-management and accounting system and as a result, its statements for the financial year 2012/13 did not accurately reflect its state of affairs and transactions.

Part of this arose because AHPETC did not properly manage the transition between its two managing agents - CPG Facilities Management, which ran the Aljunied town council when it was under the PAP before the May 2011 General Election, and FMSS, which ran the WP's town council later, it said.

As such, it was unable to provide documents for April to June 2011, resulting in AHPETC's auditor being unable to issue an audit opinion for the financial year 2011/12.

However, AHPETC also could not provide documents for transactions that took place after it took over, said the AGO.

The AGO noted that AHPETC's accounting systems were inadequate as well.

For example, it did not record lift upgrading programme expenses in its financial statements for the years in which they were incurred.

As such, there were understatements of about $240,000 and $8.14 million in FY 2010/11 and FY 2011/12 respectively. There was also an overstatement of $8.38 million in FY 2012/13.

Replying, AHPETC said one of the main challenges was a lack of an IT system that could keep track of things on a larger scale. The previous vendor, the PAP-owned Action Information Management, had terminated its services at short notice, it said. The system previously employed by the WP-run Hougang SMC was inadequate when used for a GRC.

Since then, the original Hougang system has seen many improvements, like being able to receive payments through many modes. It can also better track payments. While it is a 'work-in-progress', AHPETC said the system has served its purpose well, despite its inherent limitations which are being addressed over time.

5. Lapses in internal controls and procurement

AHPETC did not have sufficient internal controls, and this exposed it to risks like the loss of monies or valuables and wrong payment for goods and services, said the AGO.

Cheques received by AHPETC and not banked in by the end of the day were not kept under lock and key, and opening of mail that includes cheques was done in an area accessible to the public, it noted.

Access to AHPETC's strong room and safe were also not properly limited, it said.

"Surprise checks" for every safe, cash-box drawer or other receptacle for money, as required in the Town Councils Financial Rules, was carried out only once by AHPETC in two-and-a-half years.

Replying, AHPETC said it had done surprise checks at each branch office in Financial Year 2013 and 2014. It has improved its controls, it added. For example, cheques not banked in by the end of the day were now safeguarded in a safe and all cheques received are scanned by Finance staff into a central server.