KPMG: ‘Pervasive Control Failures’ In AHTC

Independent auditors have found that flawed governance in the Workers’ Party-run Aljunied Hougang Town Council (AHTC) led to improper payments running into the millions to various parties, including to its former managing agent FM Solutions & Services (FMSS) and service provider FM Solutions and Integrated Services (FMSI).

In a report made public on the town council’s website on Tuesday (Nov 1), KPMG said improper payments to FMSS and FMSI alone amounted to over S$1.5 million.

AHTC also overpaid when it appointed FMSS as its managing agent by more than S$1.2 million, said KPMG, which was appointed by AHTC on court orders to help fix compliance and governance lapses uncovered in a special audit by the Auditor-General’s Office.

Flagging “serious conflicts of interest” and a “failed control environment” at the town council, the auditing firm also warned that if the issues involving FMSS and FMSI were deliberate, “they could amount to criminal conduct, the implications of which the Town Council should consider”.

KPMG’s latest report centred on improper payments made by the council to various parties, in particular to FMSS and FMSI, which were appointed between 2011 and last year.

Their appointments “exposed the Town Council to serious conflicts of interest as the direct owners of FMSS and FMSI (with a profit motive) concurrently held key management and financial control positions in the Town Council (charged with a service motive)”, said KPMG.

For example, Mr Danny Loh – who died last year – was secretary in the town council as well as shareholder of FMSS, and sole proprietor of FMSI.

“The situation of FMSS is unlike that of the Town Council’s previous managing agents. In the former case, those approving payments for the Town Councils were not beneficiaries engaging in a profit-motive transaction with the Town Council,” said KPMG.

In the case of FMSS, the “conflicted persons” were in effect “approving payments to themselves”.

Meanwhile, the Town Councillors relinquished an “unacceptably high degree of financial responsibility” to the conflicted persons.

“In this regard, payments with an aggregate financial value of at least SG$23 million involved approvals by the conflicted persons of payments in effect to themselves through payment vouchers, which is an important gateway in the Town Council’s payment approval process,” KPMG said.

In this “failed control environment”, the improper payments to FMSS and FMSI included amongst others, overpayments to FMSS for project management fees, overpayments to FMSS for purported overtime and CPF contributions payments to FMSS without certification that work had been performed, as well as payments to FMSS that were made without the requisite co-signature of members of the town council.

These amounted to about S$1.5 million, of which at least S$600,000 ought to be recovered by the town council, said KPMG.

The firm also said the tendering out of the contracts to FMSS and FMSI was “deficient in numerous respects”.

For one, for the first managing agent contract, FMSS was more expensive than the comparable contract with the former Aljunied Town Council managing agent.

When the contract was renewed — the second managing agent contract — the rates increased significantly. The increase in the managing agent’s costs in the first year under FMSS amounted to approximately S$500,000, while under the second managing agent contract the rates were, conservatively, S$700,000 million more that what might have cost to retain CPG as the managing agent.

Overall, KPMG reported “pervasive” control failures cutting across key areas of AHTC’s governance, financial control, financial reporting, procurement and records management over the audit period. Such flawed governance has potential to “conceal and hinder the detection and identification of all instances of proper payment”, said the accountants.

As a result, KPMG said it was unable to conclude whether the improper payments and the amounts that ought to be recovered identified in the report are exhaustive.

Noting that it is beyond the auditors’ mandate to conclude whether an offence has been committed, KPMG said: “While our work was not focused on identifying potential criminal acts arising from the issues we observed, we are advised that, had the shortcomings (identified in) this report been committed deliberately, they could amount to criminal conduct, the implications of which the town council should consider.”

AHTC said it is studying the report and will respond in due course.



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