20 February 2014

AHPETC Audit — MND Must Act

For the second consecutive year, Aljunied-Hougang-Punggol East Town Council ("AHPETC"[1]) was late in finalising its audited financial statements.

For the second consecutive year, AHPETC's independent auditor, Foo Kon Tan Grant Thornton LLP ("FKTGT") issued a disclaimer of opinion.

Inability To Obtain Information
Following the 2011 General Election, the Ministry of National Development ("MND") directed reconstituted town councils (e.g., Aljunied TC) to prepare financial statements for the period from 1 April 2011 to 31 July 2011.

According to AHTC, it agreed to the incumbent managing agent's ("MA") request to be released from its contract with Aljunied TC[2].

AHTC appointed FKTGT as its auditor. It is not clear why Aljunied TC's then auditor (as at 31 July 2011) was not appointed or re-appointed as AHTC's auditor for the period 1 August 2011 to 31 March 2012.

FKTGT disclosed that it was unable to obtain the previous auditor's audit documentation nor the supporting accounting documents from Aljunied TC's last MA. Accordingly, FKTGT was unable to determine whether the items in the financial statements were fairly stated[3][4].

This situation appears not to have been resolved as at 4 February 2014 (the date of the audited financial statements).

The Auditor
Doesn't Institute of Singapore Chartered Accountants ("ISCA") require a public accountant to release past audit documentation of an entity to the current auditor of that entity?

What action will ISCA take against any public accountant who refuses to release past audit documentation of an entity to the current auditor of that entity?

Has AHTC or AHPETC filed a complaint with ISCA against Aljunied TC's last auditor for failing to release past audit documentation?

Is Aljunied TC's last auditor refusing to release past audit documentation because Aljunied TC has been reconstituted and ceased to exist; Aljunied TC's (i.e., the then People's Action Party Aljunied GRC) members no longer have any authority nor desire to request the auditor for the documentation now; or neither AHTC nor AHPETC has the authority to request the auditor for the documentation?

The Managing Agent
The circumstances surrounding Aljunied TC's last MA are equally baffling.

Aljunied TC's accounting documents belong to Aljunied TC, not its MA.

Is Aljunied TC's last MA refusing to release past supporting accounting documentation because Aljunied TC has been reconstituted and ceased to exist; Aljunied TC's (the then People's Action Party Aljunied GRC) members no longer have any authority nor desire to request that MA for the documentation; or neither AHTC nor AHPETC has the authority to request that MA for the documentation?

Ministry of National Development
Something is not right with the Town Councils Act if the past auditor and/or the past MA of a reconstituted TC can withhold audit documentation and/or supporting accounting documentation, respectively.

The Ministry of National Development, as the ministry that oversees the town councils, must step in or step up to take ownership of this problem and resolve it.

There is no time to waste because the town councils' current financial year ends on 31 March 2014.

Acting on the request by Minister for National Development Khaw Boon Wan, Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam yesterday directed the Auditor-General to audit AHPETC's financial statements[5].

The terms of reference include the Auditor-General's ascertaining the reliability and accuracy of AHPETC's financial management and accounting processes and systems, and ascertaining and understanding AHPETC's accounts. However, it is not clear if this will lead to the audit documentation from Aljunied TC's last auditor and the supporting accounting documents from Aljunied TC's last MA being handed over to FKTGT and AHPETC, respectively. It will be quite unacceptable if Aljunied TC's last auditor and last MA make available the documents to the Auditor-General, but he doesn't subsequently make them available to FKTGT and AHPETC.

Accounting Lapses
Something seems amiss with AHPETC's accounting records.

Let's just look at the relatively simple matter of transferring funds to its sinking fund.

Rule 4 of Town Councils Financial Rules (revised edition 1988) state (edited for brevity):

"4.—(1) A Town Council shall establish and maintain ... separate sinking funds for the management and maintenance of residential property and of commercial property.

(2) A Town Council shall stipulate the amount ... of the conservancy and service charges payable, and of any grants-in-aid made, to the Town Council ... to be paid into the respective sinking funds.

(2A) A Town Council shall maintain separate bank accounts for the funds established for —

(a) the management and maintenance of residential property and commercial property within the Town; and

(b) the sinking fund established for residential property and commercial property within the Town.

(2B) Within one month from the end of each quarter of each financial year, a Town Council shall —

(a) transfer to the bank account of the sinking funds ... the amount of conservancy and service charges, grants-in-aid and interest that are payble to the sinking funds and that were received by the Town Council; and

(b) reflect the outstanding conservancy and service charges and interest that are payable to the sinking funds ... as a debt owing to the sinking fund on the books of accounts.

(3) A Town Council shall establish and maintain ... separate revolving loan funds ... for the purpose of meeting expenditure under the loan schemes approved by the Town Council ...."

This seems rather straightforward.

But, it appears that AHPETC did not make any transfers during the financial year. In other words, it did not make any of the four requisite transfers. Why? Did the MA forget, four times?

It's time that AHPETC members and its MA thoroughly familiarise themselves with Town Councils Act and its subsidiary legislation, in particular Town Councils Financial Regulations.

Lapses are inexcusable, even if no moneys have been misused.

Related Party Transactions
FKTGT said it was unable to determine the completeness of AHPETC's related party transactions because it did not disclose the project management fees paid to its MA.

It would appear that AHPETC's MA, FM Solutions and Services Pte Ltd, is considered to be a related party because its managing director, Danny Loh, is AHPETC's secretary. Although Mr Loh's wife is a director of the company and general manager of AHPETC, neither role by itself gives rise to a related party transaction, in my view.

In this regard, I wonder whether the sale and leaseback of the town council management system between the People's Action Party-managed TCs and Action Information Management Pte Ltd was considered to be a related party transaction.

Conclusion
I find it rather puzzling that AHPETC should be encountering the challenges set out in the audited financial statements.

The residents of AHPETC deserve better.

---------------
Notes

1. After The Workers' Party won Aljunied GRC from People's Action Party in 2011 General Election, Hougang TC was merged with Aljunied TC to form Aljunied Hougang TC. Subsequently, after The Workers' Party won the Punggol East by-election from People's Action Party in January 2013, Punggol East TC was merged into Aljunied Hougang Punggol East TC.

2. ALJUNIED-HOUGANG-PUNGGOL EAST TOWN COUNCIL Request for MND’s Assistance and Audit of AHPETC 14 Feb 2014.

3. ALJUNIED-HOUGANG TOWN COUNCIL Annual Report 2011/2012.

4. ALJUNIED-HOUGANG-PUNGGOL EAST TOWN COUNCIL Annual Report 2012/2013.

5. MINISTRY OF NATIONAL DEVELOPMENT Auditor-General to Audit Aljunied-Hougang-Punggol East Town Council’s FY2012-13 Accounts 19 Feb 2014.

6 comments:

  1. Yes as do other residents in TCs where millions were lost

    ReplyDelete
  2. My TC accounts are all in order but that does not mean the funds were well spent. Everything is properly accounted for but they do not explain why they go about building fountains here and there and demolishing them and rebuilding them again elsewhere. Who made those decisions to build and demolish fountains. Do the residents benefit or some sycophantic party gains? I mention only fountains but that is only as an example of wasteful projects that take residents along for the exxpensive service and conservancy ride.

    ReplyDelete
  3. Yes and I suppose you would be gobsmacked by this http://www.tremeritus.com/2014/02/20/breaking-auditors-give-adverse-ratings-to-pas-financial-reports/

    ReplyDelete
    Replies
    1. AHPETC's audit difficulties stem from its inability to obtain crucial information and what appears to be internal lapses. It is clear that only MND can resolve the former. As for the latter, lapses are lapses and are inexcusable, regardless whether other organisations commit them too.

      Delete
    2. Then I hope that MND will be called upon to look into these "other organisations" with equal fervour

      Delete
  4. Good Day,
    Do you need a genuine Loan online to secure your bills? Starts a new business? Do you need a personal Loan? Our Service offer a loan from $10,000 to $10,000.000.00USD with 2% interest Rate Per year and also with an affordable repayment terms and condition.Seeking for Loan and Project Investment Funds? We uphold Professional Excellence, our definition of excellence lies in Outstanding Customer Service, Affordable Payment & Repayment Plans, Fast & Easy Process.
    Yours faithfully....E-mail: alexmarcus545@gmail.com

    ReplyDelete