MND’s 1 July Reply to Media Queries on AHPETC's FY2013 Financial Statements
The deterioration and audit concerns could weaken confidence in estate governance, potentially increasing pressure for tighter oversight of maintenance funds and resident-paid service charges.
AHPETC reported a $2.01 million FY2013 operating deficit and $1.42 million accumulated deficit after submitting qualified financial statements 10 months late.
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All Town Councils (TCs) were required to submit their audited financial statements and reports for Financial Year (FY) 2013 to the Ministry of National Development (MND) by 31 August 2014. After repeated reminders and a delay of 10 months, the Aljunied-Hougang-Punggol East Town Council (AHPETC) submitted to MND its FY2013 audited financial statements and reports on 30 June 2015.
MND will study the financial statements and reports submitted but note the following:
a. AHPETC’s FY13/14 financial statements are still qualified, with disclaimers of opinion (see Annex). This is the third consecutive year that AHPETC had received qualified statements from its own independent Auditors.
b. The TC had not complied with the Town Councils Act and Financial Rules in various areas (see Annex).
c. AHPETC went from an annual operating surplus of $1.1mil in FY11 to a deficit of $1.53mil in FY12 and a larger deficit of $2.01mil in FY13. The TC had previously understated its annual operating deficit in FY12 by half.
d. AHPETC had an accumulated deficit of $1.42mil in FY13, compared to a small accumulated surplus of $853,000 in FY12. The TC had previously overstated its accumulated surplus in FY12 as $1.84mil.
e. AHPETC’s financial position has consistently deteriorated between FY11 and FY13, even though the TC received full government grants from MND during these three years.
AHPETC’s latest financial statements and reports reinforce MND’s existing concern about the TC’s state of financial affairs.
Annex
Audit Alliance LLP, the Auditors newly appointed by AHPETC, had flagged 8 areas of concern in AHPETC, including non-compliance with legal and regulatory requirements:
a. Opening Balances. The Auditor was unable to determine if the FY13 opening balance was fairly stated. The Auditor also was unable to verify the accuracy of the amounts carried forward for certain receivables from stakeholders as well as payables to creditors and accrued expenses, which remained unresolved even after the AGO Report.
b. Conservancy and Service Receivables. The Auditor was unable to determine the accuracy of the S&CC owed to the TC that was carried forward from the previous FY.
c. Creditors and Accrued Expenses. The Auditor was unable to ascertain the completeness of the TC’s liabilities as at 31 Mar 2014
d. Conservancy and Service Fees Received in Advance. The Auditor was unable to determine the accuracy of the S&CC paid in advance to the TC that was carried forward from the previous FY.
e. Related Party Transactions. The Auditor found that the TC’s Deputy GM, who is a shareholder and director of FMSS, certified 12 invoices received from FMSS for MA services, totalling $2.1m, and subsequently approved the related payment vouchers. There was no segregation of duty between the person certifying the invoices and the person approving the related payment vouchers. The total RPT value increased to $8.5m in FY13, from $6.8m in FY12.
f. Lapses in tender specifications prepared by MA. The Auditor found that the managing agent failed to declare whether the specifications gave preference to any particular tenderer, for 3 tenders. There was also no documentation on whether the tender specifications were approved by the Tenders and Contracts Committee of the TC.
g. Transfer to Sinking Funds. The TC contravened the Town Council Financial Rules by failing to transfer due amounts into the bank account of the sinking funds. AHPETC’s transfers were up to 15 months late, and errors were discovered in the computation only after the AGO Audit.
h. Wrong usage of Sinking Funds. The TC paid for town improvement expenses out of their sinking fund, which was not allowed under the Town Councils Act.
Background
Each year, TCs are required to submit their audited financial statements, auditor’s report, and annual reports to the Ministry of National Development (MND), by 31 August, within five months of their financial year closure. MND will then table the reports to Parliament. A copy of the audited financial statements and any report made by the Town Council’s auditor shall also be forwarded to the Auditor-General.
All TCs have been able to meet the submission deadline, except AHPETC. AHPETC have not submitted their reports on time ever since their formation in 2011. Their first set of reports for FY2011 was only submitted to MND on 11 January 2013, a delay of more than 4 months. Their second set of reports for FY2012 was submitted to MND on 10 February 2014, a delay of 6 months.
In addition, for FY2011 and FY2012, AHPETC’s then-auditors, M/s Foo Kon Tan Grant Thornton LLP (FKT) had issued Disclaimers of Opinion for two consecutive years. FKT listed four areas of concern in its Disclaimers of Opinion for FY2011 and this increased to 13 areas of concern for FY2012. In audit terms, a Disclaimer of Opinion is a serious matter. It means that the auditors are unable to state that the financial statements provide a true and fair account of the TC’s financial position. In FY2012, FKT also issued a qualified opinion on AHPETC’s other legal and regulatory requirements, stating that AHPETC had not complied with the provisions of the Town Councils Act and Financial Rules in various respects.
As the observations in AHPETC’s Auditor’s Reports raised serious questions about the reliability and accuracy of its financial and accounting systems, on 19 February 2014, the Auditor-General’s Office (AGO) was appointed to conduct an audit on AHPETC’s FY 2012/13 financial accounts. This was the first time in the history of TCs that the Auditor-General had undertaken a special audit on a TC to look into concerns about its financial circumstances, under Section 4(4) of the Audit Act.
The AGO published its report on 9 February 2015. The AGO report identified many weaknesses and lapses in AHPETC, and concluded that until AHPETC addressed and rectified these weaknesses, “there can be no assurance that AHPETC’s accounts are accurate and reliable, or that public funds are properly spent, accounted for and managed.”.
The AGO Report was debated in Parliament on 12 and 13 February 2015. AHPETC’s members who are also Members of Parliament, voted in support of a motion that expressed grave concern over the AGO’s report on AHPETC, and unanimously called on all TCs to uphold high standards of accounting, reporting and corporate governance.
During the debate, the Minister for National Development stated that MND expected AHPETC to remedy the problems and weaknesses identified in the AGO Report, as well as submit an unqualified set of its FY2013/14 Audited Financial Statements and Reports by 30 June 2015 and its FY2014/15 Audited Financial Statements and Reports by 31 August 2015. AHPETC was also called upon to take steps to ascertain if TC monies (which include government grants and service and conservancy charges collected from the residents and businesses in the towns under AHPETC’s charge) had been improperly paid out, and if necessary to take action to recover such payments.