Town councils must take care to keep their operating and sinking funds separate because they are meant for different uses, said experts yesterday.
They warned that placing money into the wrong fund can cause future problems of overspending.
Their comments come after the Auditor-General's Office (AGO) found that the Workers' Party- run town council had mistakenly paid for everyday upgrading works from its sinking fund, which is earmarked for longer- term maintenance works.
By law, a town council can use its sinking fund to pay only for cyclical projects, such as repainting common areas, replacing water tanks and upgrading lifts.
Short-term maintenance, such as daily cleaning and grass-cutting, should be paid for out of the operating, or routine, fund.
The Aljunied-Hougang-Punggol East Town Council (AHPETC) also failed to transfer to its sinking fund the correct amount of service and conservancy charges (S&CC) and government grants, the AGO found in its report released on Monday.
Instead, AHPETC kept these monies in its operating fund.
About 30 per cent to 35 per cent of S&CC monies must be transferred into the sinking fund every three months, by law. But for most of the 2011/12 financial year, AHPETC made no transfers to the sinking fund.
Because the sinking fund is used for long-term works, any shortfall may not be missed immediately, said National University of Singapore (NUS) real estate associate professor Yu Shi-Ming.
But he added that "if money that is meant for the sinking fund stays in the routine fund... it gives the town council the false impression that they have more money to spend on daily operations".
Problems may then arise if funds for long-term works are used up because they were misclassified as operating monies. In such a case, the town council might have to ask residents to top up the sinking fund, said NUS real estate associate professor Lim Lan Yuan.
Tampines GRC MP and town council chairman Baey Yam Keng said making regular contributions to the sinking fund is important to ensure that enough money is stored up for long-term maintenance.
"The cyclical works may come in spikes, so we have to plan for it many years in advance," he said.
For instance, lifts are overhauled about once every 28 years. This costs $200,000 per lift for a typical block of 100 flats, which usually has two to three lifts.
AHPETC's reply to the AGO report was that it kept the sinking fund monies in its bank accounts at all times. But the AGO said it could not reach the conclusion that the money is in the bank at all times.
AHPETC said it has since made sure that the sinking fund will be properly used and maintained. It has also transferred past amounts owed into the sinking fund.