THE independent auditor for the Aljunied-Hougang-Punggol East Town Council (AHPETC) raised several more issues of pressing concern this year compared with the previous year.
This suggested a deterioration in position, National Development Minister Khaw Boon Wan said in a letter to the Finance Minister, in setting out why the Auditor-General should move in to audit the AHPETC's accounts.
The auditor's report raised "serious questions" about the reliability and accuracy of the town council's financial and accounting systems, Mr Khaw said.
Finance Minister Tharman Shanmugaratnam said in a letter to the Auditor-General that he shared Mr Khaw's concerns, and also asked that the findings be submitted to both ministers.
In the FY2012/13 financial statements submitted to the Ministry of National Development (MND) on Feb 10, the auditor flagged 13 areas of concern that led it to submit a "disclaimer of opinion". This was nine more than the previous year.
Last Thursday, Mr Khaw's ministry expressed concern that this was the second year that the auditor had reached such a conclusion on the Workers' Party-run town council's accounts.
Corporate governance experts said the disclaimer meant that auditors were unable to form an opinion on the veracity of the financial records. There are four types of audit opinions - a disclaimer is the second-worst, with the worst being adverse.
Last Friday, AHPETC chairman Sylvia Lim attributed some of the issues to the handover in 2011 from the former council under the People's Action Party.
But Mr Khaw, whose ministry oversees town councils, said in his letter: "Several serious issues which the auditor has raised relate to AHPETC's actions in 2012 and 2013, well after the handover in 2011."
He listed four areas highlighted by the auditors which Ms Lim's explanation had not dealt with.
First, the town council did not fully disclose to its auditor the full details of fees paid to a related party - an entity in which the town council's key management personnel have a personal financial interest. All town councils are required to disclose these details, he said.
In its accounts, AHPETC had declared under a "related party transactions" section that it paid managing agent fees of some $5.3 million to its agent FM Solutions and Services (FMSS).
It also declared project management services FMSS had rendered "at an agreed percentage" based on the final value of the projects, without stating an amount.
Last Friday, Ms Lim said it was standard practice for town councils to include project management as part of the services awarded to managing agents. It is not specified that project management fees should be separately reported, she added.
The second area, said Mr Khaw, was that AHPETC had not complied with the legal requirement to transfer $12.46 million in service and conservancy charges into its sinking funds for the whole of FY2012/13. Ms Lim said this was an "oversight" which has since been rectified.
However, Mr Khaw said AHPETC had not released to the auditor its latest management accounts and records of minutes after the end of the last financial year. Hence, the auditor had not been able to ascertain whether the statements reflected the necessary adjustments and disclosures.
Finally, Mr Khaw noted that the auditor had identified various other matters for giving a disclaimer of opinion. He said the auditor could not determine the validity and accuracy, or could not explain the differences, for amounts exceeding $20 million.
On Wednesday, Ms Lim said AHPETC would respond to Mr Khaw at an appropriate time. WP secretary-general Low Thia Khiang said he welcomed the decision to involve the Auditor-General.
What has happened so far
MONDAY, FEB 10:
Aljunied-Hougang-Punggol East Town Council (AHPETC) submits its audited FY2012/13 accounts to the Minister for National Development, six months after the Aug 31 deadline of last year and after seven reminders.
Independent auditors have issued a disclaimer of opinion, as they were unable to get information needed to sign off on 13 areas. This means the auditors could not fully verify the accounts. One area highlighted is AHPETC's failure to release details of project management service fees paid to a related party.
THURSDAY, FEB 13:
The Ministry of National Development (MND) expresses concern that this is the second year that AHPETC's auditors have submitted a disclaimer of opinion on its accounts.
FRIDAY, FEB 14:
AHPETC chairman Sylvia Lim describes the MND's statement as incomplete and misleading.
She says information gaps from when the Workers' Party took over the town council from the People's Action Party in 2011 still remain unfilled after repeated failed attempts to get data from the former managing agent and authorities like MND.
MND issues a second statement to say the auditors raised 13 issues of concern, four of which they had raised a year earlier and which AHPETC had promised to fix but had not. MND says the other nine areas, including AHPETC's failure to transfer monies to the sinking fund as required, have nothing to do with handover issues.
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