HDB’s Statement on KPMG’s July 2016 Monthly Progress Report
HDB notes with grave concern KPMG’s findings of the lapses in the overall control environment in Aljunied-Hougang Town Council (AHTC). The independent accountant has found “pervasive control failures” in AHTC, “cutting across the key areas of governance, financial control, financial reporting, procurement and records management over the course of five years”. KPMG has also noted that progress in remedying AHTC’s Control Failures has been slow.
2. HDB notes that KPMG has completed its work in identifying AHTC’s outstanding non-compliances with section 35(c) of the Town Councils Act, and has highlighted several important findings and conclusions in its July 2016 Monthly Progress Report:
i) A total of 185 control failures were found in AHTC, comprising 115 failures identified by the Auditor-General’s Office (AGO) and AHTC’s statutory auditors in earlier audits, and an additional 70 failures identified by KPMG in the course of its review.
ii) KPMG was of the view that “there is an issue larger than the sum of individual lapses” and that “these Control Failures point to a failure in AHTC’s control environment”.
iii) KPMG found that AHTC’s control environment, which sets the foundation and provides discipline and structure for all other components of internal control, had failed in six areas (examples at the Annex). Several Control Failures and major lapses involving large sums of monies were noted, which could conceal duplicate or fraudulent payments. For instance, KMPG found that:
There was extensive use of manual journal entries that bypassed accounts payable used to record payments totalling SGD 60,660,927 to third parties. This “highly irregular shortcut” and “large-scale use” of this practice make effective oversight of payments by the Finance Department practically impossible and raise questions about the management of AHTC’s finance function.
AHTC has 18 temporary clearing accounts with more than one million transactions of value over SGD 648,000. Although such transactions should only be recorded in such accounts on a short-term basis, investigation and clearance of these items were not done.
As at 30 June 2016, the total value of transactions using a dummy code since its creation in 2015 was SGD 271,598. Payments initiated through dummy codes would not necessarily update payee records in the Accounting System, making effective oversight of third party payments by the Finance Department much more difficult. It is easier for duplicate payments or fictitious payments to be made without being detected.
3. HDB takes a serious view of the findings by KPMG. While HDB notes that AHTC has accepted all of KPMG’s recommendations to remedy all the non-compliances in full, we are concerned over AHTC’s reported slow progress in remedying the Control Failures, coming after what has been a long and protracted process for AHTC to appoint an independent accountant following orders by the Court of Appeal. KPMG had noted in the July 2016 Report that only a few of the remediation plans put forth by AHTC were complete and estimated that it would take at least 18 months to remediate them completely.
4. KPMG noted that “even if all of the Control Failures are individually remedied, compliance with the Town Councils Act will not be sustainable unless Town Councillors and senior management set the right tone at the top, define accountability for lapses, and engage suitable vendors and employees”. KPMG further noted that AHTC’s Finance & Investment Committee met three times in 2014, five times in 2015 and twice up to June 2016, while AHTC’s Audit Committee, which was formally constituted in August 2013, met after the AGO audit was completed – once in 2014, once in 2015 and three times up to June 2016. In KMPG’s view, “there should have been a significant step up in the work of these committees, and the Town Council itself, to set the tone and provide guidance to finance executives on remediation efforts”.
5. Town Councillors have the clear responsibility to ensure that oversight of the town council’s finance functions is effective. However, KPMG had observed that although AHTC representatives have been receptive to KPMG’s recommendations, “parts of AHTC’s management see the Control Failures as requiring short-term fixes and historical explanation”, and such a narrow perspective “can undermine compliance by failing to address shortfalls in the present control environment”. It is KPMG’s view that remediation of AHTC’s control environment “will require that the Town Councillors engage to reset the tone at the top of AHTC, emphasising competence and accountability”.
6. Given the severity of the latest findings and systemic weaknesses highlighted by KPMG, it is imperative that AHTC takes immediate steps to reset its tone from the very top, strengthen its control environment, improve oversight of its financial management function, and address the pervasive control failures noted by the independent accountant. As large sums of public monies are at stake, AHTC also needs to account to its residents and the public whether any monies have been lost as a result of these lapses.
7. HDB notes that, as required by the Court of Appeal, KPMG is reviewing whether any past payments made by the town council were improper and ought to be recovered, and will be communicating directly with Pasir Ris-Punggol Town Council's accountant on the review. We look forward to AHTC’s fullest cooperation in this review so that the accountants can do a rigorous investigation and ensure that public monies are safeguarded.