The way millions were paid out is 'unlawful'

The way millions were paid out is 'unlawful'
K Shanmugam, Minister for Law and Foreign Affairs.

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 unlawyful 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 at right.)

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?"


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.

This article was first published on Feb 13, 2015.
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