How changes to law will improve town councils

Recent incidents, such as lift failures, have shown up weaknesses in how town councils are run. If the Town Councils Act is amended, town councils will have to adhere to higher standards of transparency and governance.
Recent incidents, such as lift failures, have shown up weaknesses in how town councils are run. If the Town Councils Act is amended, town councils will have to adhere to higher standards of transparency and governance. ST PHOTO: KUA CHEE SIONG
The Ang Mo Kio Town Council’s general manager and secretary is being investigated for alleged corruption.
The Ang Mo Kio Town Council’s general manager and secretary is being investigated for alleged corruption. ST PHOTO: LIM SIN THAI
Independent auditors KPMG identified “systemic difficulties” when they reviewed the Aljunied-Hougang Town Council’s books.
Independent auditors KPMG identified “systemic difficulties” when they reviewed the Aljunied-Hougang Town Council’s books. ST PHOTO: DESMOND WEE

From faulty lifts to 'double-hatting' of councillors and managing agent staff, running an HDB estate is now more complex. Insight looks at how proposed changes to the Town Councils Act will ensure better governance standards - and what other areas could be addressed

There has been lift upgrading and estate upgrading but one aspect affecting Singaporeans' day-to-day lives that is only now set for wide-ranging "upgrading" is the Town Councils Act.

It has been 28 years since town councils were formed under the Act, creating a municipal sub-layer of entities distinct from the national operations of government, but with the vital public service role of being responsible for Housing Board estate management.

Tidy void decks, efficient lifts and clean estates are all down to the often unappreciated, yet much-pondered-upon decisions of the men and women on these town councils.

They comprise MPs from the constituencies making up a town, with one of them taking on the chairman role, and appointed town councillors. They mostly work with an external company - the managing agent - which does the routine work of running the town council, such as cleaning, maintenance and working with sub-contractors.

But recent incidents have shown up weaknesses in the decades-old set-up, such as lift failures that caused online anger among residents.

Then there are broader issues of governance - such as town councils needing the autonomy to operate effectively and quickly to address residents' needs, yet requiring an accountable management regime. After all, it is public funds that are used in the council's operations.

THE PROBLEM WITH DOUBLE-HATTING

How do you evaluate the performance of the managing agent if the general manager also sits on the council? Once you separate this, everything can be done on a more arm-length basis.

CORPORATE GOVERNANCE EXPERT MAK YUEN TEEN, on why the town council and managing agent should be separated.

Improving the way town councils work has been on the Government's agenda since 2013 when it announced a review of the Town Councils Act.

Last week, the Ministry of National Development (MND) introduced a Bill in Parliament to amend the Act. Once passed, it will require town councils to adhere to higher standards of transparency and governance.

The proposed changes will be debated in Parliament after the Budget debate this year.

Associate Professor Lan Luh Luh, deputy chair of the National University of Singapore's (NUS) Centre for Law and Business, feels it is about time that the law was reviewed.

"The Act is not clear on how a town council is constituted, and the sort of codes and guidelines it's supposed to follow," says Prof Lan.

WHAT ARE THE PROPOSED CHANGES?

NO MAGIC FORMULA

Ultimately, it is not about the structure per se, but about having a framework with clear and robust processes to cater to the constituency's needs.

ASSOCIATE PROFESSOR LAWRENCE LOH, director of NUS Business School's Centre for Governance, Institutions and Organisations, on why having safeguards to ensure transparency is what really matters.

The proposals will give the Government more regulatory oversight, clarify the roles of Singapore's 16 councils, improve governance and strengthen financial management.

The idea is that while town councils should remain autonomous, they should not be unfettered and left unchecked, says the MND.

Currently, the MND has no power to compel town councils to give information on their finances, and there are no penalties if a council refuses to do so.

But if the proposed changes are passed, the ministry will be able to appoint inspectors to investigate if town councils have flouted regulations and issue an order specifying remedial action to be taken.

SELF-MANAGEMENT

We believe our response time to new issues that emerge is faster and we can quickly adjust our budget and deploy financial resources accordingly.

MR CHONG KEE HIONG, chairman of the Bishan-Toa Payoh Town Council, which has done away with a managing agent altogether.

Councils will also have to keep a registry of conflict of interest disclosures involving staff.

Furthermore, new proposals would prevent shareholders and executive decision-makers of the town council's auditor and managing agent from holding key posts on the town council. These positions include chairman, vice-chairmen, town council secretary, general manager and finance manager.

Town councils will also have to be more transparent.

The proposed changes will compel them to notify the public and the MND within 30 days of changes to their officers. The council would also have to put up public notices around the estate and online.

Key appointments requiring such notice include chairman, vice-chairmen, town councillors, chairmen of key town council committees, town council secretary, general manager and finance manager.

Currently, town councils only have to publish a notice in the Government Gazette to announce such a change "as soon as it is practicable".

As town councils manage large sums of public money, including millions of dollars in annual government grants, the proposed changes will help residents hold to account their MPs and those the MPs appoint to run the councils.

THE ISSUE OF DOUBLE-HATTING

The issue of managing agent staff holding key positions on the town council and the potential for conflict of interest that it holds, has been in the headlines of late. Reports dub it "double-hatting".

 

At Ang Mo Kio Town Council (AMKTC), the Corrupt Practices Investigation Bureau is investigating the council's general manager and secretary, Mr Victor Wong, for alleged corruption. Mr Wong is also an employee of CPG Facilities Management, which manages the town.

On a different and wider level are the woes at Aljunied-Hougang Town Council (AHTC), run by the Workers' Party (WP). Independent auditors KPMG identified "systemic difficulties" when they reviewed the council's books. One was conflict of interest in how some shareholders of the managing agent also held management roles in the town council.

This double-hatting phenomenon should change, say experts.

It creates a potential for conflicts of interest to arise, and the best safeguard is to totally separate the two sides, says corporate governance expert Mak Yuen Teen.

"How do you evaluate the performance of the managing agent if the general manager also sits on the council? Once you separate this, everything can be done on a more arm-length basis," says Associate Professor Mak.

However, the proposed new laws only prevent double-hatting if the individual is a shareholder and executive decision-maker of the town council's auditor and managing agent.

Mere employees of the town council's auditor or managing agent would still be able to double-hat, as it is reasoned that only shareholders would stand to gain directly via decisions they make in the town councils.

AHTC has said that double-hatting was "not unusual", according to a report in The Straits Times last November.

Indeed, it turns out that at most town councils here, the general manager - an employee of the managing agent, and the most senior executive of the town council - also double-hats and sits on the council as its secretary. The secretary serves as a link between the decision-making council and its operating staff.

Thirteen of the 16 town councils here are entirely managed and operated by managing agents.

The exceptions are Bishan-Toa Payoh and Aljunied-Hougang, which self-manage, and Jurong-Clementi, which this month embarked on a hybrid management model (see other report).

The overlapping of roles, it seems, is a product of how town councils have evolved.

The first councils started out already engaging the use of managing agents - back then, it was the HDB-owned subsidiary EM Services, formed with HDB staff, that had handled estate management, says NUS real estate professor Yu Shi Ming.

"This was the easiest thing to do. You already had people doing these things day in, day out - take them out and form a company with these people to offer services to town councils," he says, adding that the main consideration was to ensure a seamless transition from one model of estate governance to the next.

This model has stuck because it affords town councils several advantages.

Dr Teo Ho Pin, coordinating chairman of town councils run by the People's Action Party, says the use of managing agents to run estates is a common industry practice in the public and private sectors.

Dr Teo highlighted some advantages that managing agents offer, such as professional support in areas, including engineering, human resources and contracts.

For instance, managing agents would know the track record of companies tendering for town council contracts.

Says Prof Yu: "If you self-manage, how would you know these things?"

There could also potentially be a lack of job continuity for staff directly hired by town councils when political boundaries that constitute different towns are redrawn during general elections.

ENSURING TIMELY REPORTING

Under the proposed changes to the Act, town councils will have to submit audited financial reports within six months of the end of the financial year.

Doing otherwise may constitute an offence, with fines of up to $5,000.

This provides a firm deadline - and penalty - compared with the current requirement of submitting statements "as soon as practicable".

Since the WP took over in 2011, AHTC has missed the deadline set by the MND four times, with the most recent being last year. For the 2014/2015 financial year, the town council submitted its statements on time.

Prof Mak says six months is a reasonable time to get the paperwork in order, in line with what is expected of companies.

"If there are any issues, it will come to attention sooner," he says.

He laments the fact that a financial penalty would mean that constituents could end up bearing the costs, but notes: "That there is a reputational impact on the MPs running the town council may motivate them to avoid this."

The MND may get more bite in other aspects, too. It could soon penalise town councils that do not cooperate with inspectors during compliance reviews or do not register conflict disclosures, among others.

In some cases, key appointment holders may also be held directly accountable.

DO THE CHANGES GO FAR ENOUGH?

The proposed amendments to the Act are the most wide-ranging since town councils were first set up 28 years ago, but some experts feel they do not go far enough.

For instance, they do not require town councils to have members that have specific knowledge or know-how in areas such as accounting or procurement.

At the moment, town councillors are grouped into committees that handle matters such as finances and estate management, and function much like the board of directors of a public-listed company.

Each town council chairman can appoint between six and 30 councillors, or up to 10 councillors per MP in a group representation constituency, whichever option is greater. Two-thirds of the appointed members must be residents, to ensure resident participation.

"What they really need is to identify and have people who are knowledgeable, with expertise to chair specific areas of work," says Prof Yu.

This is done at some town councils, but it is not a mandatory requirement.

For instance, someone with banking experience could chair the finance committee.

Without this expert knowledge, committees would be less likely to question recommendations made to them by contractors or staff from the managing agent.

Another suggestion, which is not in the new Bill, comes from Prof Lan: Reduce the number of town councillors.

Some councils have grown complex and unwieldy. The first town councils had a maximum of 30 councillors, but this limit was revised upwards as GRCs expanded. Town councils now also manage bigger budgets and the needs of a far bigger population than when they first started.

Some councils can have over 60 members. AMKTC, for example - which oversees estates under Ang Mo Kio GRC and Sengkang West SMC - has seven MPs. This means that a maximum of 70 council members can be appointed.

But with so many councillors, there could be a "diffusion of responsibility", where councillors would push the work they should be doing to others, says Prof Lan.

She adds that in comparison, the boards of most public-listed companies usually comprise about a dozen members.

In the end, there is no "perfect model or magic formula", says Associate Professor Lawrence Loh, director of NUS Business School's Centre for Governance, Institutions and Organisations.

What is important, he adds, is to have safeguards to ensure disclosure and transparency.

"Ultimately, it is not about the structure per se, but about having a framework with clear and robust processes to cater to the constituency's needs," he says.

  • Additional reporting by Rachel Au-Yong
A version of this article appeared in the print edition of The Sunday Times on February 12, 2017, with the headline 'How changes to law will improve town councils'. Print Edition | Subscribe