20 August 2015

Unmodified Audit No Assurance Gov't Didn't Spend More Than Necessary

Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam told Parliament on Monday that the Auditor-General's Office gave an unmodified audit opinion on the Government's financial statements and it meant that the financial accounts of all the government departments were reliable and public funds were properly accounted for[1].

Maybe, but maybe not.

Let's illustrate with an example. Assume that, without seeking competitive offers or performing tests for price reasonableness, a government department acquires an asset for $10 million. It records a $10 million asset on its balance sheet (before depreciation) and has $10 million less in cash. On the face of it, the auditor may be satisfied. But what if that same asset could have been acquired for $7 million through competitive offers or after tests for price reasonableness? The department would have over-spent $3 million, but nowhere is the $3 million shown in its financial statements. Would anyone reading the financial statements be any wiser?

Similarly for an expense of $10 million that would have cost only $7 million after competitive offers or tests for price reasonableness.

In both situations, the government department has spent $3 million more than is necessary. The $3 million are gone forever. Is either situation really different another in which $3 million are unaccounted for?

In AGO's words[2]:

Public sector entities typically raise contract variations for an incumbent contractor to carry variation works …. Public sector entities are expected to carry out reasonableness checks on the prices of goods and services and obtain approval before awarding the contract variations. This is to ensure that the Government procurement principles of value for money and, open and fair competition are adhered to.

AGO found lapses in controls over management of contract variations in the National Parks Board, the National Population and Talent Division and the Jurong Town Corporation. There was no documentary evidence of assessment on the reasonableness of the quotes received..

Let's read what AGO had to say about National Parks Board's handling of the Gardens By The Bay project. NParks is a statutory board under the Ministry of National Development.

AGO's test checks revealed a general lack of documentation, failure to obtain approval and laxity in control over contract variations and payments by … [NParks] in managing the development of the Gardens by the Bay project (estimated total contract value of $1.06 billion). Consequently, there was no assurance that NParks had not spent more funds than necessary.

AGO's test checks … [found that] NParks had breached the Government procurement principle of open and fair competition for consultancy services contracts and there was no assurance that value for money was achieved for the services procured.

In some detail:

AGO's Observations
NParks's Response
129. NParks allowed the consultant to commence services before obtaining approval for limited tender inviting only the consultant to bid, thereby prematurely communicating to the consultant that it would be awarded the contract.

Value of contract: $2.37 million.
130. Tight timeline.

That more time was needed should have been highlighted to the relevant authorities.

Open tender should have been called.
131. Three consultancy services contracts (other than those cited in #129) were awarded via waiver of competition without compelling reasons.

Value of contracts: $20.77 million
132. Tight timeline, but NParks could not show that the tight timeline was caused by unforeseen and urgent events.

Reasons for waiving competition were not compelling.
133. The description and/or photograph, quantity and unit price of "unique, rare and unusual" plants and landscaping materials were not stated in four contracts, resulting in possible difficulties in seeking recourse if incorrect items were supplied.

Value of contracts: $7.04 million
134. Details should have been included.
135a. No evidence of assessment on reasonableness of single quotes received in 65 instances.

Value of contracts: $8.03 million

Reasons for obtaining single quotes (mostly, vendor's familiarity with project) in 43 of the 65 instances were not compelling. No evidence that other vendors could not provide services.

Value of contracts: $6.37 million
136. Project was managed by a lean in-house team supported by consultants.

Consultants' evaluation and price assessment should have been scrutinised more stringently.

Variations were mainly specialist sub-consultancy studies that had to be carried out due to complexity of the project.
135b. Approval obtained in 45 instances after variations had been carried out or completed.

Value of variations: $0.99 million

In 34 instances, approvals obtained up to 18 months after payment was made.

Value of contracts: $0.37 million
135c. No approval for variation works in 12 instances even though payments had been made.

Value of variations: $0.33 million

Value of variations paid: $0.14 million
138. Lapses in payment

▪ 33 cases without supporting documents: $0.78 million

▪ 2 cases of over-payment: $0.14 million

▪ 3 cases of goods not matching items procured: $0.04 million
139. Over-payments were recovered subsequently.

Payment process and procedures for receiving goods would be tightened.
141. No system to monitor and recover money due from consultants and contractors for procurement of information management services.

Amount paid on behalf of consultants and contractors since 2009: $0.20 million
142-143. System to track and recover money due would be put in place.

Clarification on outstanding amounts was sought from consultants and contractors subsequently.

Outstanding amounts were recovered subsequently.
144. No system to track the location of high value landscaping materials and plants located in public places.

Value of items: $6.59 million
145-146. System to catalogue and track the location of landscaping materials and plants was implemented subsequently.

Clearly, a clean or unmodified audit does not mean that the organisation had not spent more public funds than was necessary to attain the same result.


1. LYDIA LIM Town Councils Set To Be Major Election Issue The Straits Times 17 Aug 2015.

2. AUDITOR-GENERAL'S OFFICE SINGAPORE Report of the Auditor-General for the Financial Year 2014/15.

This article was last updated on 19 August 2015 10:25 pm

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