Report details 'root causes' of AHTC lapses

Workers’ Party MPs Sylvia Lim and Png Eng Huat (centre) with lawyer Peter Low, who is representing the Workers’ Party-run Aljunied- Hougang Town Council (AHTC), arriving at the Supreme Court on Jan 22, 2016.
Workers’ Party MPs Sylvia Lim and Png Eng Huat (centre) with lawyer Peter Low, who is representing the Workers’ Party-run Aljunied- Hougang Town Council (AHTC), arriving at the Supreme Court on Jan 22, 2016. ST PHOTO: MARK CHEONG

KPMG cites shortcomings in WP town council's governance framework, accounting practices

The independent accountants hired by the Aljunied-Hougang Town Council (AHTC) have pinpointed several issues that lie at the root of the town council's governance and financial lapses.

They have to do with the town council's governance framework and policy management, accounting practices, accounting system and capability of its finance department, said KPMG in its first report on the town council's accounts.

The shortcomings in these areas are the "root causes" of the lapses flagged by the town council's own auditors and the Auditor-General's Office in a special audit report in February last year.

Of the 17 lapses which were still outstanding, the town council has fixed two, said the firm.

These and other findings were in the KPMG's report which was submitted on Friday to the Housing Board.

  • Some weaknesses identified by KPMG

  • FINANCE DEPARTMENT

    The Aljunied Hougang Town Council's (AHTC) finance department was weakened by a high turnover of staff. It also did not have a finance manager, and had only a deputy finance manager.

    This led to the loss of institutional knowledge and inconsistencies in accounting practices.

    AHTC told the firm it had difficulties recruiting and retaining managerial staff, but has since appointed two consultants to help with book-keeping matters, and also hired a second deputy finance manager.

    ACCOUNTING PRACTICES

    The town council had not closed its accounts every month, making it hard to ensure the accuracy of its accounting data. AHTC is coming up with procedures to do so, and plans to implement them by the 2017 financial year.

    It is also using a dated accounting system, which is no longer supported by vendors and cannot provide reports in the formats needed.

    This has made it hard for the town council to get an accurate picture of its service and conservancy charges arrears.

    The town council has issued a tender for a new system to replace it. It is also improving its system so that it can generate reports on service and conservancy arrears without the need for manual entry. This should be ready by the month's end.

    RELATED PARTY TRANSACTIONS

    The town council has a conflict of interest policy that did not extend to councillors. The policy also did not explicitly cover payments made to related parties.

    AHTC will come up with a policy and establish procedures for such transactions that comply with the law, by next month. It had also informed KPMG that there had not been any transactions with related parties since the town council's contract with its former managing agent, FM Solutions and Services, ended last July.

    Four of the town council's senior officers had stakes in FMSS, and had approved payments on behalf of the town council to their own company.

The Workers' Party-run town council released the report yesterday, saying that it has been progressively implementing measures to address the outstanding issues flagged.

AHTC hired a team of accountants from KPMG last month to look into its books.

This followed a Court of Appeal order in January for the town council to appoint a Big Four accounting firm to establish whether any past payments it made were improper and ensure it complies with the laws.

The apex court also directed the accountants to submit monthly progress reports to HDB.

In the 42-page report, KPMG noted that the "root causes" "are fundamental to... systemic difficulties for AHTC in effectively and efficiently discharging its obligations" under the Town Councils Act and financial rules.

It pointed out that the town council's inability to keep its finance department staff had led to the loss of institutional knowledge and inconsistencies in accounting practices, for instance.

AHTC's use of a dated accounting system, which is no longer supported by vendors, had resulted in its inability to produce reports in the format required for accounting processes, it added.

And due to weaknesses in how related party transactions were approved, work on projects had sometimes started before the go-ahead was given.

The firm also said that the town council had sometimes transferred too little or too much money to its sinking fund, because it did not correctly compute the amounts due.

It recommended measures, such as developing an accounting manual and code of business conduct, to address these "root causes".

But it said: "As our review is still ongoing, these recommendations are preliminary in nature and may be refined in the course of this engagement."

In a statement posted on the town council's website yesterday, AHTC chairman Pritam Singh said that the town council has agreed, after discussions with KPMG, to implement several measures by July.

They include a policy management process, a governance and internal control framework, guidelines for staff in its finance department and an accounting manual.

The town council also transferred $9.1 million to its sinking funds on Friday, fulfilling its obligations under the court judgment that had set specific deadlines for the transfers to be made, said Mr Singh.

KPMG said the town council had fixed two lapses to do with internal controls and procurement.

It had done so by ensuring that it conducts surprise checks on the cash held at its offices, and by appointing different people to hold the keys to its strongroom and safe.

Of the remaining 15 lapses that range from the incorrect use of sinking funds to incomplete disclosure of related party transactions, AHTC has started to put in place measures to remedy 12 of them.

Another three lapses are still pending review by KPMG.

The Ministry of National Development said on Thursday it would give the town council $12.9 million in grants that it had earlier withheld, as it is satisfied that safeguards are in place to ensure the money is properly used.

The HDB said on Friday that it is reviewing KPMG's report.

A version of this article appeared in the print edition of The Sunday Times on April 17, 2016, with the headline 'Report details 'root causes' of AHTC lapses'. Print Edition | Subscribe