Saturday, February 14, 2015

AHPETC - The Cut and Thrust?

[No. Not really cut and thrust. At least not the two articles/speeches included here.

The first is Shanmugam's speech which summarises or comprehensively spells out the issues from the AGO audit report of AHPETC. That's the cut. Maybe also the thrust.

The second is Low Thia Khiang's "response" to the audit - such as it is. Really, it is not much of a response. Basically it is a complaint that life isn't fair. 


I have found that generally life isn't fair. But maybe he has a point. I do not know. But I do find that people who complain that life isn't fair, usually aren't very... matured. If you are 15 years old and you complain that life isn't fair, you still need some growing up to do. If you are 40 and you complain that life isn't fair... what's your excuse? Life. Isn't. Fair.

That said, this is politics. At its worst? Maybe not. But I can do without the full-court press from the mainstream media. And the PAP

This is big? Maybe.

This is boring? To me? Definitely.]

Feb 13, 2015

AHPETC: Setup designed to take money from residents and enrich friends, says Shanmugam

Parliament yesterday debated a motion that it "notes with concern" the Auditor-General's report on the audit of Aljunied-Hougang-Punggol East Town Council (AHPETC). The report highlighted lapses in financial management by the town council. The audit came after the town council, run by the opposition Workers' Party, was late in submitting its financial accounts and in reporting its cyclical maintenance works. Its auditors had for two years running issued a disclaimer of opinion, which means they were unable to state that the financial statements provide a true and fair account of the financial position. Below are excerpts of Law and Foreign Minister K. Shanmugam's speech on the issue.

Aljunied GRC is one of the largest GRCs in Singapore. It has more than 150,000 residents, mainly living in three-, four-room HDB flats, honest people, they work hard to raise their families, make a living, pay their service and conservancy charges every month. They trusted the WP (Workers' Party) with their hard-earned money.

The report from the Auditor- General's Office (AGO) raises serious questions - about the conduct of the (Aljunied Hougang Punggol East Town Council) town councillors, and what they did with the money of the honest residents of Aljunied, Hougang and Punggol East.

One: The AGO report makes clear that the AHPETC allowed millions of dollars to be paid to related parties in breach of their legal, fiduciary duties. The payments were unlawful.

Two: These payments were done without transparency or accountability.

Three: The AHPETC suffered a loss because of the payments to the related parties.

Payment of millions to related parties
ON MAY 8, 2011, the WP won Aljunied. Seven days later, on May 15, a couple (Mr Danny Loh and his wife How Weng Fan) set up a company, FMSS.

Mr Loh also owned a sole proprietorship, FMSI. The town council (TC) gave the managing agent (MA) contract to FMSS in 2011. The TC also gave three more contracts to FMSS over the years. Total value of the contracts was about $27 million. Ms How became the general manager and Mr Loh the secretary of the TC. Another FMSS shareholder, Mr Yeo (Soon Fei), became the deputy general manager of the town council.

It is common practice across Singapore that when a town council engages the managing agent, a major part of the MA contract is to provide the town council with its key management personnel to supervise the day-to-day running of the TC. We would thus naturally expect the TC's key management personnel, its secretary, general manager and deputy GMs, to be employees of the MA.

MND (Ministry of National Development) does not prohibit this. MND has allowed it in response to town councils' feedback. However, in all these 25 years, in no other town council except AHPETC are the secretary, general manager, deputy GMs not just employees of the MA but complete owners of the MA.

Their ownership interest and control of the MA is what distinguishes Aljunied TC from all other TCs. That makes any transaction between the TC and FMSS and FMSI a related party transaction that has to be disclosed under FRS (Financial Reporting Standards).

For AHPETC, its own auditors raised queries which the TC refused to answer. When employees don't own the MA they cannot be said to have a serious personal financial interest in each such transaction. But with AHPETC, the position was different: The MA was owned by Mr Loh, Ms How and Mr Yeo. The payments they were verifying and approving on behalf of the TC were going directly into their pockets.

Mr Loh and Ms How issued invoices on behalf of FMSS and FMSI. Ms How and Mr Yeo, acting on behalf of the TC, then certified the work for payment - to their own company. Ms How then approved the payment vouchers, cheques to be issued by the TC - for payment to her own company FMSS, and FMSI. Mr Loh then on behalf of the TC signed the cheques for payment to his companies. The cheques were then co-signed either by Ms Sylvia Lim or Mr Png (Eng Huat).

About $6.6 million was paid out in just one financial year (2012/2013) in this way. If similar payments were made in the other years, then they won't be much less than $20 million.

This arrangement was designed deliberately, it was not accidental, it is really a husband and wife team who are hardcore supporters of the WP, close to some of the WP town councillors. They must have been highly trusted. They were the assenter and proposer for the WP in the General Election of 2006.

The conflict of interest is apparent, real and serious. It would have been a serious breach of fiduciary duties for any town councillor to have approved this process.

Overpaying fees for managing agent
THE second way in which the TC was run for the benefit of FMSS... was by inflating the MA fees paid to FMSS.

The TC decided to pay significantly higher MA fees to FMSS compared with all other TCs. The total MA fees paid by the TC to FMSS was nearly $22 million over four years.

A comparison of the MA rates in Singapore for 2014/15 (shows that) FMSS charges the TC $14.92 for each commercial unit compared with $4.80 and $6.65 for all other TCs. Likewise, FMSS charged the TC $7.43 for every residential unit. Others charge between $4.80 and $6.65 and, from July 2014, FMSS increased its rates even more. The rates are now $15.82 and $7.88.

If you take the weighted average of MA fees paid by other TCs, it is $5.72 each for both residential and commercial units. The difference therefore on an annual basis between what the TC paid FMSS and what others pay their MAs is about $1.6 million every year. That's not the profit, that is just the difference. This $1.6 million is on top of the profit that FMSS was making.

The rhetoric from the WP is always about helping the poor man, the reality is that the WP took money from the man in the street to give to their friends in FMSS.

Mr Low (Thia Khiang), Ms (Sylvia) Lim keep saying there's been no loss. Maybe there was no one taking money through the back door in the dark of the night, there was no need because the money was taken from the front door in broad daylight through all this overcharging.

Lack of disclosure
THE second major problem arising from the facts is lack of transparency, lack of disclosure. First, the facts do not seem to have been fully disclosed to all the town councillors. And second, there seems to have been no proper discussion of the conflicts at all. The town council also refused to give details to PricewaterhouseCoopers - which was requested as part of the AGO audit.

Active, persistent non-disclosure. Obviously, deliberate. And the consequence of all of this? Of the millions that were paid to FMSS, who knows how much was justifiable?

How much monies were lost?

MS SYLVIA Lim and Mr Low (Thia Khiang) have been quick to say that despite all the problems, no TC monies have been lost. Can she or anyone else honestly say that no monies have been lost? When the town councillors act in breach of their fiduciary duties; and pay Mr Loh and Ms How millions of dollars? Overpayment to a related party is not a loss?

It is a really strange statement from Ms Lim. The House is burning - and she is standing in front of it and says - you know, there has been no "loss". Is it possible that she does not recognise loss even when it is staring before her face?

Let us try and put a number on the monies that have been paid to FMSS in breach of fiduciary duties. First the MA fees of $22 million. The overcharging could be $6.4 million. Perhaps more. Add in other amounts which were paid to FMSS, without any adequate check or control. $6.6 million in one year. Four years - what would the figure be? That's before you even look at issues like blatant double charging or overcharging.

The AGO was not asked to do a forensic audit. So they did not check all the items. They only checked the general processes. And even that only for one year. So you cannot say based on AGO audit that no money was lost. AGO has made that clear.

Let us put this in layman terms: You have a business, with cash, valuables belonging to other people. You don't know exactly what you have. You put a friend in charge. They take what they want of the cash. You overpay them several million dollars. You don't check. Auditors say your accounts are in a mess, the accounts are unreliable. In fact you say yourself that you can't produce the accounts. Auditors say you have no clear idea of what has happened to the cash.

And you come and you say: no money is lost. One can only wonder at such a statement.

And the money was lost not through accident. The structure was approved by at least some of the town councillors for your party supporters to form a company and do all of this.

This is not just a question of negligence, or inexperience. You don't need many years of experience to know that you shouldn't let your friends do what they like with public funds.

We will only get a full picture of what monies were lost if there was a forensic audit of the TC from May 2011 to January 2015. It will be quite easy for the TC to find out how much money exactly FMSS and FMSI made. All of you have to do is to ask them to produce their accounts and bank balances.

FMSI is a sole proprietorship. So the rest of us here and the rest of Singapore will not know what they made. The basic point is that while the TC lost money, FMSS and FMSI made money. The TC can find out the answers. Will it do so?

Mr Low said to this House that the town council had no choice but to appoint FMSS. He played the victim. No one else wanted to tender to be the managing agent for the town council because it is an opposition ward. Lucky to have Ms How to the rescue, he says, because she had some experience from Hougang.

When the Workers' Party MPs took over the town council on May 8, 2011, there was an existing MA contract with CPG. This was due to expire only on July 31, 2013, two more years to go. And the contract was such that it could not be terminated by CPG. It could only be terminated by the Workers' Party.

The Town Councils Act provides for continuity. There was no need to start from scratch. Ms Sylvia Lim says CPG asked to let go. Maybe so. But it was up to the Workers' Party whether they wanted to let CPG go.

But you had already decided what you wanted. So let us not pretend here. FMSS was set up on May 15, 2011, seven days after the GE. And you decided to replace CPG with FMSS. Ms Lim has said that discussion on termination started in end of May. That was after you set up FMSS. Taking over was premeditated, to hand over the managing agents to the parties that you wanted to.

You said having Ms How was lucky, but I think one can conclude from the AGO report that it has not been so lucky for the residents, seeing how they have been shortchanged.

The AGO report makes for sad reading. They (AHPETC) didn't manage the sinking fund, their data is unreliable, they have submitted reports with significant discrepancies and looks like they're not even able to monitor the overall state of what residents pay in S&CC fees, they don't perform bank reconciliations required by the TCFR (Town Council Financial Rules), they don't properly control receipts and handling of cheques, the prompting systems and procedures are inadequate, they don't check on amounts collected, paid out, receivables, their own auditors... heavily and seriously qualified the accounts for FY2011/12 and 2012/13; and for FY2013/14 no audited accounts have been submitted - it's well overdue.

Basically, your TC is in shambles. It is quite amazing to hear you stand up and say everything is okay. If you were a listed company, by now your shareholders would have sued you because you collect public funds every month and you have a duty to account to your residents.

In conclusion, I say this to the AHPETC town councillors: Each of you appear to have seriously breached your fiduciary duties.

On behalf of the residents of Aljunied GRC, more than 150,000 of them, hard-working, honest people, we have to ask the WP to come clean and explain yourselves to the public. Your residents deserve some real, honest answers.
[Shanmugam is in fine form... like he was back in court making summary arguments for a case. He must miss his lawyering days.]

Take politics out of town council transfers: WP's Low

The Workers' Party came under flak in Parlaiment for the way it runs Aljunied-Hougang-Punggol East Town Council, with an Auditor-General Office's report criticising it for financial lapses. WP chief Low Thia Khiang answers critics, saying the party takes the report seriously, but that politics has affected the WP's ability to take over the town council operations smoothly.

 FEB 13, 2015

THE Workers' Party (WP) supports the motion. We treated the Auditor-General's Office (AGO) audit seriously.

We take the findings of the AGO seriously and have responded to details of the finding in writing to AGO.

The fact remains that it has been a challenge for the Workers' Party, being an opposition party, to attract managing agents. When the public tender was called in 2012, three companies collected the tender document and only one company submitted the tender.

In a more recent tender, only one company, the largest managing agent managing People's Action Party (PAP) town councils, collected the tender document but no one submitted any tender.

What we learnt from this AGO audit is that we should have appointed a consultant to look at internal controls in compliance with the Town Councils Act, while the elected MPs focus on taking over the management of the town to ensure that major services are not interrupted and residents' routine lives are not affected. This is something we will do if such a privilege should happen in future elections.

But the problems of professional town management and compliance with financial rules will remain a real challenge if there are no established managing agents who are prepared to do the job.

It would seem that managing agents serving PAP town councils are unwilling to serve as managing agents in non-PAP town councils, and that the reason appears to be political rather than professional. It looks like the only option for any opposition party is to take over the direct management.

I did this in Hougang SMC (Single Member Constituency) when I took over the town council in 1991. However, at the time, the HDB provided computer and EMSU (Essential Maintenance Service Unit) services and town councils pay a fee per month for the services. The council recruited staff directly to manage the town. Hougang SMC is a compact town. Currently, the only alternative town council financial accounting system was developed by Hougang SMC which has proven to be inadequate for a GRC town.

Direct management means newly elected MPs will have to start from scratch to recruit and train staff to be familiar with HDB estate management to start taking over management of the town within 90 days as required under the Town Councils Act and, at the same time, to look for accounting software to transfer the account into the new system and pray that the system will work.

If you're not able to do all these at the same time, you'll be labelled as incompetent.

Hence, under our current system, it seems to me that any opposition party which aspires to be elected in a GRC will have to build a town management team to train hundred staff officers first, then taking the advice of the Minister for National Development start shopping for an off-the-shelf accounting software.

If an opposition party aspires to be the next government, perhaps it may need to build an army of civil servants first. This is a strange political situation for any functioning democracy to be in.

The Workers' Party was fortunate to have a managing agent at least with the experience in managing the town of Hougang SMC and who was prepared to take the challenge of managing a much larger town to enable us to take over the management of the Aljunied GRC town without major disruption to the services affecting the lives of thousands of residents. We did also have a financial accounting system in place, although it fell short of features and functions that managing a larger town requires.

I think this is not the way forward for the good of the nation.

If we consider residents' interests as most important, then the Government must also protect residents' interests in the transition of town management from one party to another party.

We are for transparency and accountability, we are not shy to support the motion that is critical of us. We are fully aware that if we overlook certain matters, the PAP Government would be the first to take us to account. We are not bothered by that as this is what a First World Parliament should be - keep whoever is in charge on their toes to do the job properly and be accountable to the people.

AGO has taken a year to check the accounts of AHPETC for the FY2012/2013 and found lapses in several areas. It has not found the town council to be engaged in corrupt practices nor that any money has been lost or misappropriated after thousands of transactions were examined. We should put this episode in the proper perspective.

We support the motion to strengthen the legislative framework for town councils. As we relook the legislative framework, we need to look at the depoliticisation of the transitioning process and the professionalising of town management, so the incoming town councils can work to achieve good management and not be left stranded. Newly elected MPs should not be tested on whether they can build up a town management system from scratch putting residents' interests at risk in the process.

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