Law Minister slams WP over running of town council
In a hard-hitting 45-minute speech in Parliament, Law Minister K. Shanmugam ripped into the Workers' Party (WP) over its running of the Aljunied-Hougang-Punggol East Town Council (AHPETC).
The Auditor-General's report, which was made public on Monday, had pointed out a number of lapses in the way bookkeeping was carried out in Singapore's largest town council. Mr Shanmugam raised four main issues:
1. WP BREACHED ITS POSITIONS OF TRUST WITH UNLAWFUL PAYMENTS
Millions of dollars had been paid to friends of the Party, he said. Days after the WP won the elections in May 2011, a husband-and-wife team set up a new company, FM Solutions and Services (FMSS), which was later appointed managing agent of the town council.
FMSS owners and directors were also senior officers of the town council, which meant they would certify work and approve payment to their own company. (See graphics.)
The town council secretary, who is also the director of FMSS, would sign the cheques to be paid to his own company. These cheques were then co-signed by the town council chairman Sylvia Lim or vice-chairman Png Eng Huat.
About $6.6 million was paid out this way in just one year, Mr Shanmugam said. "This process is unacceptable. It is unlawful."
While it is common practice for town councils to have key management officials from the managing agent's company, only in AHPETC are the officials also the owners of the management company.
Presenting a table of managing agent rates, which are paid by residents and commercial tenants in an area, Mr Shanmugam said AHPETC inflated its managing agents' fees.
For instance, a commercial unit in AHPETC paid $14.92 per unit as compared to between $4.80 and $6.65 in the rest of Singapore.
"The reality is that WP took money from the man in the street and gave it to FMSS. Mr Low (Thia Kiang) and Ms Lim keep saying that there has been no loss (of money due to mismanagement)," he said.
"Maybe there was no one taking money through the backdoor in the dark of the night - because the money was going out in broad daylight, through the front door."
2. LACK OF TRANSPARENCY AND ACCOUNTABILITY
Mr Shanmugam said the town council did not reveal that two of its senior officials were also owners of the managing agent. Instead it simply stated the two as employees of FMSS in the meeting minutes.
When questioned by auditors, the town council said the details were not within the ambit of the audit.
"Why doesn't the town council give proper answers instead of paying hide-and-seek?" Mr Shanmugam asked.
3. TOWN COUNCIL SUFFERING A LOSS
Throughout the saga, the town council has maintained that no money had been lost, but Mr Shanmugam disagreed.
"When the town councillors act in breach of their fiduciary duties, that is not loss to the town council? Overpayment to a related party is not loss?
"The house is burning and (Ms Lim) is standing in front 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?"
4. INDIVIDUAL RESPONSIBILITY OF THE MPS
Calling on each of the WP MPs, Mr Shanmugam said it was time for them to "come clean".
Starting with Mr Chen Show Mao, he questioned if and when Mr Chen knew whether the town councillors were also owners of the managing agent, and the way they were approving payments to themselves.
"As a lawyer, you will know: every town councillor owes fiduciary duties. It will be a gross breach of those fiduciary duties to have allowed (the town councillors) to act as they did. And rubber stamp what they did.
"You will be aware that such conduct is unlawful," he said.
Moving on to Mr Pritam Singh, who is the town council vice-chairman, he referenced Mr Singh's legal training and his rally speeches during the 2011 General Election.
Mr Singh had said a thread running through the WP's manifesto is one of transparency and accountability.
"You have been anything but transparent and accountable. There is a thread all right, but it weaves and leaves a tangled web."
Turning to Ms Lim, he said she knew from the beginning how the entire managing agent operation was set up and that she had approved it without discussion on how to protect residents' monies, or whether there was a conflict of interest.
"You must (have) known that such conduct would be in serious breach of your legal, fiduciary duties, that it would be unlawful to do so."
Saving his last salvos for WP chief, Mr Low, he said the owners of FMSS were his friends, which was how the company got the contracts to manage the council.
Questioning Mr Low's role in the saga, he asked if he had allowed "all this" to happen, and if he would take responsibility as secretary-general of the WP.
Saying that the Auditor-General's Office (AGO) report makes for "sad reading", Mr Shanmugam called for more accountability.
"On behalf of the residents of Aljunied GRC, more than 15,000 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."
Earlier, Minister for National Development Khaw Boon Wan (above) told Parliament that the AGO findings confirmed that something was seriously wrong at the town council.
"(The findings) paint a picture of financial mismanagement, incompetence and negligence in corporate governance," he said.
If there were such findings on a listed company, shareholders would call for the removal of the chief executive officer and the board of directors, he added.
"In Japan, the chairman and CEO would call for a press conference and take a deep bow. And in the good old days, they may even commit hara-kiri."
The ritual suicide was practised by samurai in feudal Japan as an honourable alternative to disgrace or execution.
Calling the MPs running AHPETC "evasive, unresponsive and misleading", he announced several steps the Ministry of National Development (MND), which oversees the town councils, will be taking in the coming months.
1. Town council must remedy problems
Mr Khaw said AHPETC will have to deal decisively with the "gross incompetencies" of its managing agent.
He asked if AHPETC was going to sue its managing agent. He said the ministry expects an unqualified set of its FY2013 financial reports by June 30 and FY2014's financial reports by Aug 31.
2. Suspension of AHPETC's service and conservancy charges (S&CC) grants
The ministry is withholding its grants for FY2014 until the problems are fixed. This adds up to some $7 million a year.
To avoid the town council not being able to pay for essential services, MND is open to paying out half the grants if AHPETC can assure the ministry that the money is being used properly.
3. Amending the Town Councils Act
MND will be tabling a Bill this year to amend the Town Councils Act to put in place enforcement and penalties for when town councillors and elected Members of Parliament do not perform.
This is to ensure good governance and accountability, as well as give the ministry powers to collect information and launch investigations when necessary
SPELLING IT OUT IN 'LAYMAN'S TERMS'
Minister for Law K. Shanmugam explains in Parliament what he called "losses" suffered by AHPETC in a simplified manner:
- You have a business, with cash, valuables belonging to other people.
- You don't know what exactly 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, and that you have no clear idea of what happened to the cash.
- And you say: no money is lost.
Money not lost, just not transferred appropriately: WP
Ms Lim ST FILE PHOTO
Workers' Party (WP) chief Low Thia Kiang said the party supported Mr Khaw Boon Wan's motion relating to the Auditor-General's audit report, but called on town council transfers to be "de-politicised".
He said the problems of the Aljunied-Hougang-Punggol East Town Council (AHPETC) started when the WP could not find a managing agent after taking over Aljunied Town Council in 2011.
"It seems that the managing agents serving PAP town councils are unwilling to serve in non-PAP town councils, and the reason appears to be political rather than professional," Mr Low said, adding that the previous contractors with Aljunied GRC terminated their contracts abruptly.
Later in his speech, he said various WP MPs would touch on different aspects of the Auditor-General's report.
Speaking on the sinking funds and related party transactions, AHPETC chairman Sylvia Lim reiterated that the monies in the sinking funds were not lost, but rather were not transferred to the appropriate bank accounts.
The funds have since been transferred as needed and the town council has also made good the transfers, including the ones in FY14.
In small outfits like FMSS, Ms Lim said it was inevitable that directors of the company would be holding key positions in town council management.
She maintained that the managing agent, FMSS, has no decision-making power over who is awarded tenders.
The two times it was awarded contracts without tender happened in the transitional period shortly after GE2011 - one for nine months and the other for a year. The contracts ran concurrently.
Furthermore, when it came to disclosing related party transactions, Ms Lim (above) said there were no clear rules stating how much details should be disclosed, and that the previous management of Aljunied GRC had related parties involved too.
"The town council has no issue with disclosing the value of the related party transactions. Moving forward, we have suggested that the MND (Ministry of National Development) make it clear which parties are considered related in the town council context," she said.
The town council will also exercise more diligence in dealing with and recording such transactions in future, Ms Lim said, adding that it will implement a checklist to be filled in by all tenderers and contractors of AHPETC.
She highlighted that when it came to payments, all cheques had to be co-signed by the council chairman or vice-chairmen, which meant that staff of FMSS could not simply make out cheques to themselves.
Furthermore, out of the $6.6 million in payments, about $6.4 million were agreed monthly sums for maintenance services.
Since the appointment of a new finance manager, the town council now has a new process where three other people not associated with FMSS are involved in the payment approval process, she added.
As for Mr Khaw's allegation that the town council had shown disrespect to the auditors by not producing the necessary documents, Ms Lim said this was not the case, and that thousands of documents were provided for the audit.
Towards the end of the sitting, Ms Lim responded to Law Minister K. Shanmugam's speech to "utterly reject" his assertion that the WP was benefiting its friends.
AHPETC vice-chairman Pritam Singh, responding to Mr Shanmugam's speech, said he will answer questions directly to AHPETC residents during house visits.
In response, the Minister of State in the Prime Minister's Office and Ministry of Culture, Community and Youth, Mr Sam Tan, said he is a resident of Aljunied GRC.
"I will not bother you to come to my house during the house visit to explain to me. You can give the answer on transparency and, if I might add, professionalism, integrity and honesty, to this House (during) tomorrow's sitting," he said.
The debate on the Auditor-General's report on AHPETC will continue when Parliament sits again today.
TIMELINE OF THE SAGA
Feb 13, 2014: Ministry of National Development (MND) concerned that Aljunied-Hougang-Punggol East Town Council's (AHPETC) auditors had submitted its accounts for the second year running with a note that they were unable to fully verify them.
Feb 14: AHPETC chairman Sylvia Lim says MND's statement is misleading, as Workers' Party (WP) couldn't get data from the former managing agent after taking over in 2011, and from authorities such as MND.
MND says that nine issues, like failure to transfer monies to the sinking fund, have nothing to do with handover issues.
Feb 19: Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam directs Auditor-General's Office (AGO) to audit AHPETC's accounts.
Nov 5: The annual town council report shows AHPETC as the only one with a red grade for corporate governance (second year in a row) and service and conservancy charge (S&CC) arrears management (third year).
Nov 7: Minister of State for National Development Desmond Lee says AHPETC's arrears rate means that 39,000 households are subsidising 16,000 that did not pay their S&CC.
Nov 10: Ms Lim says AHPETC is studying the overdue S&CC and will address the issues after the audit.
Dec 5: A WP tender for AHPETC managing agent closes after three weeks without a bid.
Jan 14, 2015: WP takes steps to collect some S&CC it is owed.
Jan 26: WP says human error accounts for AHPETC's erroneous reporting of a high arrears rate. Its latest S&CC arrears rate as of end of last September is 5.66 per cent for homes, 7.24 per cent for businesses.
Feb 9: AGO highlights five lapses in governance and compliance with the law by AHPETC, such as lapses in managing S&CC arrears. It says the town council did not have a system to monitor the scale of its S&CC arrears. Inadequacies in its accounting system meant AHPETC could not generate an "ageing analysis" of its S&CC and could not give its own auditors required information.
AHPETC replies that it was "hampered by a lack of historical data" needed for an ageing analysis.