SINGAPORE - The Ministry of National Development (MND) has accused FM Solutions & Services (FMSS) of grossly profiteering at the expense of its sole client - the town council run by the Workers' Party (WP).
But WP chairman Sylvia Lim rubbished the claims in a letter to the MND, saying the ministry's "series of careless accusations" were aimed at politically discrediting the party.
In a statement on Saturday, MND noted that for the financial year (FY) 2013/2014, the Aljunied-Hougang-Punggol East Town Council (AHPETC) suffered an operating deficit of $2 million. But that same year, FMSS made a net after-tax profit of $2 million after paying its directors and shareholders fees and salaries amounting to $1.14 million.
And although FMSS' revenue rose 30 per cent between the two financial years, from $6.7 million to $8.8 million, its profit after tax rose 300 per cent from $510,904 to $2.04 million.
"Had the town council not overpaid FMSS, it might well have had been able to break even," the MND said. It noted that the total payments by AHPETC to FMSS owners and directors had amounted to 22 per cent of FMSS' revenues in FY2012/2013, and grew further to 36 per cent in FY2013/2014.
"Such levels of profit margin are abnormal," said the MND. "As AHPETC was FMSS' only client, these findings support MND's earlier concern that the town council had overpaid FMSS excessively."
In her letter to MND, which Ms Lim made public on the WP website, she said that AHPETC did not overpay FMSS, and asked what the MND meant by "abnormal" profit margin. She noted that the managing agents of other town councils had not made known their profit levels.
"We are appalled at the series of careless accusations made by your ministry against AHPETC. It is shocking that despite our clarifications on your allegations relating to lost monies and overpayment, your Ministry continues to make spurious statements to distract the public and aimed at politically discrediting AHPETC," said Ms Lim who is the immediate past chairman of AHPETC.
AHPETC had also been paying FMSS - appointed its managing agent after a public tender - in line with contractual rates, and "payment in accordance with contracts cannot be overpayment", she added.
The latest development follows an ad hoc review done by the Accounting and Corporate Regulatory Authority (Acra) into FMSS' auditor Teo Liang Chye & Co, to determine the quality of FMSS' accounts and its audit process, the MND said in its statement.
FMSS was appointed managing agent for the Aljunied-Hougang-Punggol East Town Council (AHPETC) from 15 July 2011 to 14 July 2015, during which a series of accounting and governance lapses were found at the town council in a special audit by the Auditor-General's Office.
Among which were related party transactions, because FMSS' main shareholders were the late Danny Loh, who died in June while on holiday abroad, and his wife Ms How Weng Fan. The two owned 70 per cent of share of FMSS, and were respectively the town council's secretary and general manager.
Separately, a pending judgment from the Court of Appeal will decide if independent accountants can be appointed to, among other things, safeguard government grants to the AHPETC.
Because the AHPETC is FMSS' sole client, the MND has written to WP chairman Sylvia Lim to ask, among other things, if she was aware of the extent of profiteering in FMSS, if she has examined past transactions with FMSS, and how she intends to recover the monies lost due to overpayment.
"As FMSS was paid using service and conservancy charges collections from residents and operating grants from the MND, public monies are at stake," said the MND. "What happened between the town council and FMSS is not a private matter, but one which MND needs to look into."
In her response to the letter, Ms Lim said that what FMSS pays its employees is not within AHPETC's control.
The town council also "does not ask its contractors about their profitability or internal arrangements", she added.
She said the political environment here had put town councils run by opposition parties at a financial disadvantage as companies were less likely to bid for their jobs.
"Your Ministry ought to recognise the existence of an imbalanced system and take into consideration the political reality of the situation," she said.
"We also question your Ministry's political motivation for issuing a public release on this matter at such a premature stage, when you say that your Ministry has not even completed a review of the findings by ACRA."
MND Statement on FMSS' Accounts
1 Following an Accounting and Corporate Regulatory Authority's (ACRA's) ad-hoc review of FM Solutions & Services' (FMSS) auditor, Teo Liang Chye & Co, the Ministry of National Development (MND) has found that FMSS has been grossly profiteering off its sole client, Aljunied-Hougang-Punggol East Town Council (AHPETC). In FY13/14, while AHPETC suffered an operating deficit of $2.0 mil, FMSS made a net after-tax profit of $2.0 mil, after paying its directors/shareholders fees and salaries amounting to $1.14 mil.
2 FMSS was the Managing Agent (MA) for AHPETC from 15 July 2011 to 14 July 2015. In AHPETC's FY13/14 Financial Statements and Reports, its independent auditor, Audit Alliance LLP, found that the TC's Deputy General Manager, who was also a shareholder and director of FMSS, certified invoices received from FMSS totalling $2.1mil on behalf of the TC, and subsequently also approved the related payment vouchers by the TC to FMSS, with no segregation of duties. This reinforced MND's concerns about the TC's state of financial management, and in particular, whether payments made by the TC to FMSS were valid and proper. On 9 July 2015, shortly after MND received the Financial Statements and Reports, MND wrote to ACRA to ask if ACRA had any concerns about the quality of FMSS' accounts and the audit process that validated them.
3 In response, ACRA commenced a practice monitoring review on FMSS' auditor, Teo Liang Chye & Co, on 14 August 2015, after giving them one month's notice. ACRA has completed its review and surfaced its findings to MND on 27 August 2015.
4 On examining the accounts, MND has found gross profiteering by FMSS, at the expense of AHPETC, its sole client:
FMSS made a profit after tax of $510,904. This was after FMSS paid its three Owners/ Directors, fees and salaries of $702,295, and consultancy & secretarial fees of $300,000.
Total payments to the three FMSS Owners/Directors for FY12/13 amounted to $1,513,199.
FMSS made a profit after tax of $2,035,784. This was after FMSS paid its four Owners/Directors, fees and salaries of $839,696, and consultancy & secretarial fees of $300,000.
Total payments to the four FMSS Owners/Directors for FY13/14 amounted to $3,175,480.
Between FY12/13 and FY13/14
While FMSS' revenue increased by 30% in one year, from $6,740,572 to $8,773,429, its profit after tax rose 300%, from $510,904 to $2,035,784.
5 MND observes that the total payments by AHPETC to FMSS Owners/Directors amounted to 22% of FMSS' revenue in FY12/13. It grew further to 36% in FY13/14. Such levels of profit margin are abnormal. As AHPETC was FMSS' only client, these findings support MND's earlier concern that the TC had overpaid FMSS excessively. In addition, MND notes that AHPETC had an operating deficit of $1.5 mil in FY12/13, and a further deficit of $2.0 mil in FY13/14. Had the TC not overpaid FMSS, it might well have had been able to break-even.
6 As FMSS earned its revenues solely from AHPETC, and FMSS' Owners/Directors also held key management positions in AHPETC, MND has written to Ms Sylvia Lim, Immediate Past-Chairman of AHPETC, to ask if she was aware of the extent of profiteering in FMSS, and if so since when had she known, and what she had done about it. In addition, as AHPETC had terminated its contractual relationship with FMSS, MND has also asked Ms Lim if she has examined past transactions of the TC with FMSS, and how she intend to recover the monies lost due to any overpayment.
7 As FMSS was paid using Service & Conservancy Charges (S&CC) collections from residents and S&CC operating grants from MND, public monies are at stake. What happened between the TC and FMSS is not a private matter, but one which MND needs to look into. MND is therefore making a public statement on this matter of public interest, which underscores why MND has applied to the Court to appoint Independent Accountants.
Background Info on FMSS
FMSS was incorporated on 15 May 2011 as a limited exempt private company. As a limited exempt private company, FMSS did not have to file its accounts with ACRA. FMSS' main shareholders were the late Mr Danny Loh and his wife, Ms How Weng Fan. Together they owned 70% of the shares of FMSS. During the period when FMSS was the MA for AHPETC, the late Mr Loh and Ms How were also the TC's Secretary and General Manager (GM).
SYLVIA LIM'S RESPONSE TO MND'S LETTER ON FMSS' ACCOUNTS
To: Mr Han Kok Juan
Senior Director (Housing)
Ministry of National Development
Dear Mr Han,
We refer to your letter, received today.
We are appalled at the series of careless accusations made by your Ministry against Aljunied Hougang Punggol East Town Council (AHPETC). It is shocking that despite our clarifications on your allegations relating to lost monies and overpayment, your Ministry continues to make spurious statements to distract the public and aimed at politically discrediting AHPETC. A copy of our Open Letter to Residents published in June 2015 can be found at this link (http://www.ahpetc.sg/sylvia-lims-open-letter-to-residents/) for your reference.
We reiterate that FM Solutions & Services Pte Ltd (FMSS) was appointed the Managing Agent (MA) of the AHPETC for FY 12/13 and FY 13/14 pursuant to a contract awarded through a public tender. Similarly, FMSS bid for, and was awarded, a contract to provide Essential Maintenance Services Unit (EMSU) services, after an open tender. Payments made by AHPETC to FMSS were made pursuant to these contracts. Payment in accordance with contracts cannot be overpayment.
With regard to paragraphs 3 to 5 of your letter, we wish to highlight that arrangements between FMSS and its employees are entirely commercial and not within the control of AHPETC. I am not aware of the matters you have highlighted therein, as AHPETC does not ask its contractors about their profitability or internal arrangements. We emphasise that AHPETC has ensured that payments made to FMSS are in line with and within the budget provided under the tender awarded.
In any case, it is misleading and unfair to compare MA rates charged by FMSS with MAs of other town councils under the People's Action Party (PAP), since their MAs did not submit a single bid for our public tender for MA services in 2012. FMSS' bid for MA services in 2012 was assessed, using the former rates charged by CPG Facilities Management for the PAP-managed Aljunied TC as a baseline. It is also ambiguous as to what the Ministry means by an "abnormal" profit margin, when it is not clear what the other MAs' levels of profit are in other town councils.
It is unfortunate that the political environment has put non-PAP town councils at a financial disadvantage due to the lack of competitive bidders. Your Ministry ought to recognise the existence of an imbalanced system and take into consideration the political reality of the situation.
Lastly, our stand remains that there is no basis for your Ministry to apply to the Court to appoint Independent Accountants. We also question your Ministry's political motivation for issuing a public release on this matter at such a premature stage, when you say that your Ministry has not even completed a review of the findings by ACRA.
IMMEDIATE PAST CHAIRMAN
ALJUNIED-HOUGANG-PUNGGOL EAST TOWN COUNCIL