The National Development Ministry (MND) is studying the town council framework to see what can be done to ensure better protection of public funds, said its minister Khaw Boon Wan on Monday.
Town councils are entrusted to deliver essential municipal services and manage large sums of public monies, he noted in Parliament.
And while residents can hold their town councils to account in areas such as estate cleanliness and maintenance at elections, it is difficult for them to exercise effective oversight in other areas such as financial management, he added.
Mr Khaw was replying to Chua Chu Kang GRC MP Alvin Yeo, who had asked what measures are available to the ministry to protect residents' interests, should town councils fail to observe good corporate governance and responsible accounting practices.
Separately, should a town council fail to maintain its estate or if there is a need to remove imminent danger to residents, "the Minister for National Development can intervene in the operations of the town council and appoint someone else to perform its duties", Mr Khaw added.
His comments come two weeks after Finance Minister Tharman Shanmugaratnam directed the Auditor-General to move in to audit Aljunied-Hougang-Punggol East Town Council (AHPETC) FY 2012-13's books.
Independent auditors had failed to give the Workers' Party-run town council a clean bill of health for two years in a row, prompting the MND to express concern.
Mr Khaw, with AHPETC chairman Sylvia Lim and WP secretary-general Low Thia Khiang present in the House, also spoke of how the Town Councils Act and Financial Rules, which govern town councils, give MPs "much latitude to run town councils within broad and general rules of governance".
Town councils were set up in 1989 by an act of Parliament to give authority and responsibility to elected MPs to take charge of their constituents' estate, and to make them accountable to their voters for the running of the estate.
The Act only lists three offences: the misuse of town council funds, contravention of town council lift upgrading program rules, and wilful withholding of information required by an auditor without reasonable cause. All three attract fines, said Mr Khaw.
But while the Town Council Act may have limited enforcement powers, individuals who run town councils are subject to laws of the land beyond the Act.
"Criminal and civil liabilities apply when their actions amount to transgressions of such laws," the minister added.
Mr Khaw said that in general, town councils are expected to manage their own affairs and be accountable to their resident-voters. This includes keeping proper accounts, which must be audited annually and promptly submitted to MND for tabling in Parliament.
MND will make public its concerns and observations so residents are informed and can hold their town councils to account. MND also regularly publishes a town councils report, said Mr Khaw, so that residents know how their councils are performing.