MND accuses FMSS of grossly profiteering off AHPETC
Ministry of National Development fires new round of charges against AHPETC over alleged lost monies and overpayment involving its former managing agent
A war of words has erupted between the Ministry of National Development (MND) and the Workers' Party (WP) team behind the Aljunied-Hougang-Punggol East Town Council (AHPETC).
And it has to do with the amount of profit FM Solutions & Services (FMSS) made while it was the managing agent of the town council (TC)from July 15, 2011 to July 14, 2015.
FMSS' contract with AHPETC expired on July 15 this year and WP started running the town council from that date.
In a statement released yesterday, the ministry accused FMSS of grossly profiteering off its sole client AHPETC.
For financial year 2013/2014, the ministry's statement said that while AHPETC suffered an operating deficit of $2 million, FMSS made a net after-tax profit of $2 million, after paying its directors/shareholders fees and salaries amounting to $1.14 million.
For financial year 2012/2013, FMSS made a profit after tax of more than $500,000.
The ministry said: "This was after FMSS paid its three owners/directors fees and salaries of $702,295, and consultancy and secretarial fees of $300,000. Total payments to the three FMSS owners/directors for financial year 2012/2013 amounted to $1,513,199."
The ministry said the details emerged following an Accounting and Corporate Regulatory Authority's (Acra) ad-hoc review of FMSS' auditor, Teo Liang Chye & Co.
FMSS is a limited exempt company and so did not have to file accounts with the Acra. But in July, after the ministry received AHPETC's final reports, the ministry asked Acra if it had "concerns".
That was when the statutory board pulled up FMSS' auditor Teo Liang Chye & Co for a review.
MND then learnt that the total payments by AHPETC to FMSS owners/directors amounted to 22 per cent of FMSS' revenue in financial year 2012/2013, and 36 per cent in financial year 2013/2014.
"Such levels of profit margin are abnormal. As AHPETC was FMSS' only client, these findings support MND's earlier concern that the TC had overpaid FMSS excessively.
"In addition, MND notes that AHPETC had an operating deficit of $1.5 million in financial year 2012/2013, and a further deficit of $2 million in financial year 2013/2014.
"Had the TC not overpaid FMSS, it might well have had been able to break even."
WAS SHE AWARE?
The ministry said it had written to Ms Sylvia Lim, immediate past-chairman of AHPETC, to ask if she was aware of the extent of profiteering in FMSS and if so, since when had she known, and what had she done about it.
The ministry also asked Ms Lim if she had examined the past transactions of AHPETC with FMSS, and how she intended to recover the monies lost due to any overpayment.
"As FMSS was paid using service & conservancy charges (S&CC) collections from residents and S&CC operating grants from MND, public monies are at stake.
"What happened between the TC and FMSS is not a private matter but one which MND needs to look into."
FMSS is majority-owned by a husband and wife team. The late Mr Danny Loh and Madam How Weng Fan were also the secretary and general manager respectively of AHPETC.
The ministry said the couple received $576,000 in consultancy fees - on top of director fees and salaries - in the two financial years that the review covered.
Speaking to reporters on the sidelines of an event at Sree Narayana Mission Home yesterday, Law Minister K. Shanmugam said: "This is the information that the town council refused to give to auditors, including the Auditor-General's Office audit... You will see they refused to give information on related party transactions or transactions from FMSS.
"It's obvious overcharging. They were asked in Parliament if they were going to recover this money. And they said, 'No, everything was above board.' They will not recover (the money) because it was all fair, and they justified the payment without disclosing the details."
WP hits back at charges
TNP FILE PHOTO
Ms Sylvia Lim (pictured), the immediate past-chairman of Aljunied-Hougang-Punggol East Town Council (AHPETC), said in response to the Ministry of National Development's (MND) statement: "We are appalled at the series of careless accusations made by your ministry against AHPETC.
"It is shocking that despite our clarifications on your allegations relating to lost monies and overpayment, your ministry continues to make spurious statements to distract the public and aimed at politically discrediting AHPETC."
Ms Lim is also the chairman of the Workers' Party (WP), which now runs the town council.
She said FMSS had been awarded the contracts through an open tender and payments made to the managing agent were in accordance with the contracts. "Payment in accordance with contracts cannot be overpayment," she said.
In a letter to residents in June, Ms Lim said that in its tenders for managing agent services in 2012 and 2014, AHPETC had not received competing bids.
As for FMSS' profits that emerged following a review by the company's auditor Teo Liang Chye & Co, Ms Lim said the town council "does not question its contractors about their profitability or internal arrangements".
"We emphasise that AHPETC has ensured that payments made to FMSS are in line with and within the budget provided under the tender awarded," she said.
Rebutting the ministry's point that the town council "overpaid", Ms Lim said it is not fair to compare the rates charged by FMSS with that charged by the managing agents of town councils under the People's Action Party (PAP).
FMSS' rates were based on what the Aljunied Town Council used to pay when it was under the PAP, she added.
"It is unfortunate that the political environment has put non-PAP town councils at a financial disadvantage due to the lack of competitive bidders. Your ministry ought to recognise the existence of an imbalanced system and take into consideration the political reality of the situation," Ms Lim said.
She questioned the timing of the statement. Singapore will go to the polls on Sept 11.
"We also question your ministry's political motivation for issuing a public release on this matter at such a premature stage, when you say that your ministry has not even completed a review of the findings by the Accounting and Corporate Regulatory Authority," she said.
She had previously accused the media of creating the wrong impression that "the town council secretary and its general manager... are freely being given contracts without tender and paying themselves handsomely without accountability".
She had also said AHPETC said it had put in place further controls and made sure of a segregation of duties.
Ms Lim said in Parliament on Feb 12 that since Sept 8, 2011, cheques made to FMSS had to be co-signed by her, or either of AHPETC's vice-chairmen Png Eng Huat and Pritam Singh.
In the June letter to residents, Ms Lim said AHPETC has made improvements and acted promptly to hire external accountants to assist to clean up its accounts and to further strengthen its processes.
AHPETC did not say if managing agent fees to FMSS were suspended while it examined its processes.
Judgment pending on case
The Auditor-General's Office (AGO) found a series of accounting and governance lapses at the town council in a special audit during the time when FMSS was managing agent for the Aljunied-Hougang-Punggol East Town Council (AHPETC).
That period was between July 15, 2011 and July 14, 2015.
In the audit, the AGO checks found related party transactions. Mr Danny Loh, who died in June, and his wife How Weng Fan own 70 per cent of FMSS, but they were also AHPETC's secretary and general manager respectively.
On May 4, the Ministry of National Development (MND) filed a court application to appoint independent accountants to oversee government grants to the town council.
But the High Court dismissed the application on May 27, with Justice Quentin Loh saying the ministry had not established legal bases to do so.
Justice Loh said only the Housing and Development Board (HDB) and residents could take action against the town council if they wished to.
The MND lawyers then filed an appeal on May 29.
On Aug 3, the Court of Appeal reserved judgment on MND's appeal to admit independent accountants for the Workers' Party-run town council and to add the HDB as co-plaintiff to the case.
No judgment date has been fixed by the court.