There were conflicts of interest involved in transactions worth $25.9 million between the Aljunied-Hougang-Punggol East Town Council (AHPETC) and its managing agent, and the town council had failed to properly monitor and manage these contracts, the Auditor-General's Office (AGO) said in its report on the town council's accounts.
These conflicts had arisen as four of the town council's senior officers - secretary Danny Loh Chong Meng, general manager How Weng Fan, and deputy general managers Yeo Soon Fei and Johnson Lieow Chong Sern - had stakes in its managing agent FM Solutions & Services (FMSS) and had verified work and approved payment on behalf of AHPETC to their own company in some instances.
Mr Loh, who is married to Ms How, is also the owner of FM Solutions and Integrated Services (FMSI), a contractor that the town council hired to provide lift maintenance and rescue services.
While double-hatting of roles is not uncommon among town councils, including those run by the People's Action Party, ownership of companies that provide managing agent services is not prevalent. AHPETC had also failed to disclose and manage the conflicts of interest resulting from it, the AGO said.
It 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."
These related party transactions were the most glaring lapse highlighted in the AGO's report on the audit of the town council's accounts for FY 2012/13.
The AGO said AHPETC did not properly evaluate transactions involving the four, "hence risking the integrity of such payments".
In its report, the AGO flagged five aspects of lapses in governance of related party transactions that had arisen.
One, it did not disclose fees for project management services by FMSS amounting to $223,000, or for essential maintenance and lift rescue services (EMSU) from FMSS and FMSI totalling $1.28 million, as required by Singapore Financial Reporting Standards for related party transactions.
Two, there was no open competition for procurement of EMSU services in 2011, and the contract was given to FMSS following a tender waiver. The AGO found a lack of due diligence in assessing its fee, and this led to overcharging.
The committee of four AHPETC councillors considering FMSS' proposal informed other councillors that the fee should be similar to that of the previous contractors, and that this was $70,110 per month in all. But the AGO's checks found the actual fee was about $49,000 per month, or 30.1 per cent lower than cited.
The AGO also observed that the fees billed by FMSS for October 2011 to June 2012 averaged $67,000 per month, 36.7 per cent higher than the fees charged by the previous contractors.
Three, auditor PricewaterhouseCoopers (PwC) - hired by the AGO to assist in the audit - did not see any documentary evidence that AHPETC councillors had considered the conflicts of interest involved. This included those for contracts for managing agent and EMSU services totalling $20.7 million awarded in 2012.
Four, AHPETC did not have the necessary checks and balances for payments to related parties. PwC observed 84 invoices amounting to $6.61 million from FMSS and FMSI that were issued and signed by Ms How and Mr Loh.
Five, AHPETC did not comply with the Town Councils Financial Rules as it issued written contracts only after the services had begun, in particular the two contracts totalling $20.7 million awarded to FMSS in 2012.
In its response, AHPETC said it had no intention to hide any material information, as it had specifically made a disclosure under the heading "related party transaction, that had not been made by other town councils".
On why the EMSU contract was awarded to FMSS without a tender, AHPETC said the previous service provider did not want to continue providing the services to the town council.
AHPETC was left with little time to find a replacement, and awarded the contract to FMSS.
It also said it had since recovered $122,411.98 that it overpaid, in a credit note from FMSS.
As for approving the two contracts only after FMSS had started work, AHPETC said this was because FMSS had been continuing in its capacity as managing agent.
AHPETC added that town councillors were also "very much aware" of the four persons' ownership stakes in FMSS, as well as their roles in the town council.
It added that all cheques issued to FMSS also had to be co-signed by AHPETC chairman Sylvia Lim or vice-chairman Png Eng Huat.
AHPETC said it has also put in place further controls and made sure of a segregation of duties.
National University of Singapore professor Mak Yuen Teen, who specialises in corporate governance, said that just because there was a related party transaction did not mean there was an unfair benefit.
"But it's a big deal in the sense that town councils are managing millions in public funds, so it's important for them to have financial controls in place like the government agencies do."