25 February 2014

AHPETC Needs To Change

The managing agent ("MA") of a town council is a key entity to give effect to the town council's responsibilities of controlling, managing, maintaining and improving the town.

Although Aljunied-Hougang-Punggol East Town Council's ("AHPETC") performance was rated generally on par with that of the other town councils for FY2012 (ended 31 March 2013) in estate cleanliness, estate maintenance and lift performance, some points raised by its auditor in its audited financial statements for FY2012/13 should give AHPETC pause for thought about its compliance culture, including but not limited to the role of its MA in ensuring compliance with the Town Councils Financial Rules.

I will discuss four of the issues raised in the audit of AHPETC's financial statements for FY2012/13.

Transfer of Funds to Sinking Fund
Rule 4 of the Town Councils Financial Rules[3] requires AHPETC to transfer, within one month from the end of each quarter of each financial year, to the bank account of the sinking funds the amount of conservancy and service charges, grants-in-aid and interest that are payable to the sinking funds and that were received by it.

It appears that AHPETC did not make any of the four requisite transfers during the financial year that were due by 30 April 2012, 31 July 2012, 31 October 2012 and 31 January 2013, respectively.

It is likely that AHPETC would not have made the transfer that was due by 30 April 2013 (because its auditor was unlikely to have proceeded sufficiently with the audit by that date to have been in a position to alert AHPETC of the omission).

Since the (same) auditor did not point out any similar omission in AHTC's audited financial statements for FY2011/12, it appears that AHPETC made the transfers in FY2011/12 but stopped making the transfers in FY2012/13.

Related Party Transactions
AHPETC did not make available to its auditor details of the project management fees paid to its MA.

Mr Danny Loh, who is AHPETC's secretary, is the MA's managing director. His spouse, who is AHPETC's general manager, is a director of the MA.

Rule 76 of the Town Councils Financial Rules[4] does not preclude the MA from participating in any other contracts with AHPETC, but it must observe certain rules, including additional rules if the MA would become the sole supplier of any stores, services or works to AHPETC as a result of quotations or tenders being waived.

According to AHPETC[5]:

"It is standard practice for TCs which engage MAs, including PAP TCs, to include project management as part of the MA services awarded. As far as we know, TC financial statements do not specify separate reporting for project management fees paid, as these are reported as construction costs for the project or Sinking Fund expenditure. In any event, AHPETC submits quarterly returns to MND [Ministry of National Development] on any new contracts awarded to MAs. We are thus puzzled by the auditors’ observation as to why this leads to a qualification of the accounts, but more puzzled by why MND sees this as an issue."

AHPETC misses the point.

Why would AHPETC withhold the information, which is in its possession, when it reasonably knew that the auditor would otherwise qualify (or, in this case, additionally qualify) the audited financial statements?

Unlike transferring moneys to the sinking fund, which cannot be remedied retroactively if the transfer did not take place before the deadline, the auditor's request for related party information can be satisfied any time before the audit is finalised.

Conservancy and Service Receivables
According to its auditor, AHPETC provides for impairment losses of conservancy and service receivables only when they are more than seven years in arrears, as it considers them to be collectible provided ownership is unchanged and in the absence of adverse circumstances indicating non-collectibility.

AHPETC was unable to provide the auditor with an aging analysis or credit profile information, however.

If the MA does not maintain an aging analysis, how does it or AHPETC practise good receivable management?

Creditors and Accrued Expenses
According to its auditor, AHPETC records the accrued liabilities for non-routine works rendered by vendors only when the works orders are issued by AHPETC's project managers. AHPETC does not have any standard operating procedures to enable timely recording of liabilities.

Is the auditor saying that AHPETC incurs liabilities before works orders are issued?

Final Comments
Many of AHPETC's accounting difficulties stem from its auditor's inability to obtain audit documentation from the previous auditor and the supporting accounting documents from Aljunied TC's last MA. Accordingly, its auditor was unable to determine whether the items in the financial statements were fairly stated[6].

With the Ministry of National Development, which has oversight over town councils, apparently rendering neither assistance nor suggestion to resolve the difficulties after they were reported in AHTC's audited financial statements for FY2011/12, AHPETC continues to live with not knowing whether its financial statements are fairly stated. This makes financial accountability particularly vexing.

That said, it is disappointing and perplexing that AHPETC is compounding the challenge from its inherited problems with accounting shortcomings of its own doing, even if no moneys have been misused. They do not reflect well on AHPETC and serve as ammunition for those who want to see The Workers' Party fail.

It is time for AHPETC to thoroughly review its standard operating procedures, including but not limited to compliance with the Town Council Financial Rules. Perhaps too, its culture of how it does things. It must hold its MA to a high standard of performance. Heads may have to roll to bring about change.

The residents of AHPETC deserve better — they deserve The Workers' Party's best efforts.

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Notes

1. A town is the area declared to be a town under the Town Councils Act, and comprises the common property of the residential and commercial property in Housing and Development Board's housing estates therein. A town council is a body corporate constituted to control, manage, maintain and improve the town. A town council has perpetual succession and may sue and be sued in its corporate name.

2. After The Workers' Party won Aljunied GRC from People's Action Party in 2011 General Election, Hougang TC was merged with Aljunied TC to form Aljunied-Hougang TC. Subsequently, after The Workers' Party won the Punggol East by-election from People's Action Party in January 2013, Punggol East TC was merged with Aljunied-Hougang TC to form Aljunied-Hougang-Punggol East TC.

3. Rule 4 of Town Councils Financial Rules (edited for brevity):

"4.—(1) A Town Council shall establish and maintain ... separate sinking funds for the management and maintenance of residential property and of commercial property.

(2) A Town Council shall stipulate the amount ... of the conservancy and service charges payable, and of any grants-in-aid made, to the Town Council ... to be paid into the respective sinking funds.

(2A) A Town Council shall maintain separate bank accounts for the funds established for —

(a) the management and maintenance of residential property and commercial property within the Town; and

(b) the sinking fund established for residential property and commercial property within the Town.

(2B) Within one month from the end of each quarter of each financial year, a Town Council shall —

(a) transfer to the bank account of the sinking funds ... the amount of conservancy and service charges, grants-in-aid and interest that are payable to the sinking funds and that were received by the Town Council; and

(b) reflect the outstanding conservancy and service charges and interest that are payable to the sinking funds ... as a debt owing to the sinking fund on the books of accounts."
 
4. Rule 76 of Part IV—Expenditure and Payments, Town Councils Financial Rules:
"Managing Agent
 
76.—(1) Tender specifications prepared by a managing agent of a Town Council shall —

(a) as far as practicable, be drafted so as not to give preference to any tenderer and bear a declaration by the managing agent that the specifications do not give preference to any particular tenderer; and

(b) be approved by a Tender Committee comprising members of the Town Council.

(2) Where tender specifications prepared by a managing agent unavoidably specify the use of services of, or acquisition of stores from, any particular supplier, the tender specifications shall state that equivalent alternatives may also be offered by tenderers.

(3) A managing agent of a Town Council shall not be disqualified from submitting a tender in response to an invitation to tender for the execution of works or the supply of stores or services to the Town Council if —

(a) before the close of the tender, the managing agent declares its interest to the Town Council, chairman or committee having the authority under rule 74(13) to accept the tender;

(b) the Tender Opening Committee in respect of the tender exercise does not comprise any officer or employee of the managing agent;

(c) the witnessing officer of the Tender Opening Committee is a member of the Town Council; and

(d) the managing agent does not participate in the evaluation of the tenders received in response to the invitation.

(4) Where a Town Council or chairman intends to waive quotations or tenders pursuant to rule 73(14) or 74(17) and as a result the managing agent of the Town Council will be the sole supplier of the stores, services or works to the Town Council, such waiver shall not be permissible unless —

(a) the specifications of the stores, services or works have been approved by a committee comprising members of the Town Council; and

(b) the managing agent does not participate in the evaluation and recommendation for such waiver."

5. ALJUNIED-HOUGANG-PUNGGOL EAST TOWN COUNCIL Request for MND's Assistance and Audit of AHPETC 14 Feb 2014.

6. ALJUNIED-HOUGANG-PUNGGOL EAST TOWN COUNCIL Audited Financial Statements for FY2012/13.

1 comment:

  1. Care to comment of the 50% staff cost increase in the PA, almost half of the government grant is used for staff cost. Who are this people anyway and how many are actually doing work for PAP. Most are all based in their HQ and doing f-all

    ReplyDelete