Auditor-General’s Report FY 2015/16: Audit observations

SINGAPORE - In its latest report for financial year 2015/16, the Auditor General’s Office (AGO) flagged lapses and inadequate financial controls in six ministries and six statutory boards. These ranged from investments made without proper approval and evaluation by the Ministry of Defence, to the National Arts Council paying a consultancy fee of S$0.41 million for the construction of a bin centre that cost S$0.47 million. Here’s are highlights of the AGO’s audit observations:

MINISTRY OF DEFENCE (Mindef)

The AGO audited the Savings and Employee Retirement and Premium Fund (SAVER-Premium Fund), focusing on receipts and payments as well as investments. It found:

• Mindef failed to provide for Central Provident Fund (CPF) contributions on the Full Savings Vesting (FSV) Bonus, which is paid to SAVER Plan members who have completed 10 years of service.

• Mindef did not provide the CPF contributions since 2007, when the FSV bonus was introduced.

• Mindef had considered FSV bonus as an integral part of the SAVER Plan and as a termination benefit which would not attract CPF contributions

• But AGO said the bonus is paid to officers while they employed, hence CPF contributions would need to be paid. This was affirmed in the legal advice sought by Mindef.

• MINDEF said it would make the required CPF contributions by next month. For FY2014/15, the estimated CPF amount for 215 members is S$324,000.

• Last January, Mindef invested S$50.26 million in a United States Real Estate Investment Trust exchange-traded fund (US REIT ETF) without proper approval by the SAVER-Premium Fund’s Board of Trustees. The ministry only sought approval from the then Director of Defence Finance.

• It also appointed an investment manager without the Board’s approval.

• Evaluation of the US REIT ETF was not adequate, and complete information on the investment costs was not presented when seeking the director’s approval.

• Mindef said no approval for the investment was sought from the Board because it was deemed a transitional investment consistent with the Board’s approved strategic asset alocation. This was pending the appointment of two Board-approved fund managers for investments of S$25 million each in Global REITS and US REITS.

• However, the AGO noted that Board’s approval was only for the aforementioned S$25 million investments.

• Mindef has since obtained covering approval from the Board for the appointment of the transitional investment manager

• It will review the processes relating to seeking approval for investment

MINISTRY OF EDUCATION (MOE)

The AGO found a range of lapses at MOE, from lapses in enforcement of scholarship bonds, late re-covery of tuition fee and study loans, and inadequate monitoring of research projects it gave grants to.

• The MOE did not ensure that NTU and NUS imposed penalties, where warranted, on scholars who failed to serve their bonds.

• While S$36.32 million was disbursed for a scholarship scheme in FY2014/15, the lack of proper over-sight meant there was no assurance the grants were used optimally for the intended purpose, said the AGO.

• 14 of the 30 scholars from the two universities who failed to serve their required bonds were not reminded of their bond obligations nor were they sent Letters of Demand to impose liquidated dam-ages where warranted. Where letters were sent, they were between one to 22 months late, and two cases were only sent after 17 and 26 months.

• In response, the MOE said:

> Most of the cases flagged by the AGO were before the enhanced measures were fully implemented.

> The MOE has worked with the universities to enhance processes in monitoring and enforcing the scholarship bond.

> Since enhanced measures were implemented, default rates have come down significantly

• Late recovery of tuition fee loans and study loans — unrecovered loan balance totalled S$228.04m as at June 30, 2015.

• The AGO said the MOE lacked controls to ensure tuition fee and study loans were promptly recovered when due. NUS and NTU relied on banks to monitor and recover loans.

• Of 116 overdue loans the AGO reviewed, recovery of 27 cases began only one to 3.5 years later, while 58 loans were in default for at least two years. In 33 of these cases, banks could not show proof that any loan recovery action was taken for prolonged periods of time.

• Despite the banks flagging long outstanding loans to the MOE, the ministry was slow to ensure banks’ recovery actions were adequate.

• The MOE over-contributed S$4.14 million over nine years to NTU’s sinking fund for the replacement of MOE-funded building and facilities because the ministry’s records had duplicate and wrong records.

• In response, the MOE said:

> It is working closely with the universities and banks to ensure prompt follow-up of loans in arrears.

> Where delay in repayments were due to the borrower’s financial difficulty, the ministry may allow the borrower to defer repayment or reduce the monthly payable temporarily

• The MOE disbursed S$2.96 million in grants for research projects at NUS and NTU even when the teams failed to submit their progress reports for annual reviews.

• 52 project reports from NUS and NTU were overdue by between three months to five years, as at Dec 31, 2015.

• In response, the MOE said:

> It has enhanced the existing grants administration system to track the submission of progress re-ports more efficiently.

> Universities now have to provide monthly updates on the submission of final reports from research-ers.

> The MOE is also reviewing the appropriate action to take against researchers who are late in submit-ting their progress reports.

MINISTRY OF FOREIGN AFFAIRS (MFA)

The AGO found irregularities in the management of subscription of telecommunication services, with overpayments totalling S$109,868 and wastage totalling S$80,744 on mobile lines that were no longer needed.

• No proper verification of invoices to ensure that rates and amounts billed and paid were correct.

• Out of 26 invoices, 18 had indications of overpayments.

• Rates billed were different from usual rates, or there were wide fluctuations (more than 20 per cent) in rates billed between months.

• No evidence officers verified service and rates billed by vendors against the contracts.

• Their methods of either comparing with the rates in previous invoices or spot checking the phone plan subscription rates billed against an internal listing were not effective, said the AGO.

• The MFA has since recovered the overpayments.

• The MFA also subscribed to 28 mobile lines that were no longer needed.

• 11 lines had not been used in more than two years, while 17 lines belonged to officers who had either left the MFA or were assigned other lines three months to three years earlier.

• Measures to rectify this include:

 > Terminating the 28 mobile lines

 > Implementing processes to monitor usage and review the need for mobile lines annually,

 > Plans to trigger the termination or assignment of lines when officers leave the MFA

MINISTRY OF MANPOWER (MOM)

The AGO found that the MOM bought a computer system for S$432,407 but left it unused since November 2014 because it could not be integrated with the ministry’s Foreign Domestic Worker System.

• The MOM failed to evaluate whether the Document Generator System could be integrated in its tender evaluation in March 2014.

•There was no evidence to show the MOM had plans to redeploy the unused assets. Working level discussions did not materialise.

• The MOM is now exploring redeploying the assets within the ministry.

NATIONAL ARTS COUNCIL (NAC)

The AGO found lapses in the NAC’s management of the Victoria Theatre and the Victoria Concert Hall redevelopment project, after carrying out test checks on six contracts with a total value of S$139.17 million. It found:

• The NAC paid S$0.41 million in consultancy fees for the construction of a bin centre, equivalent to 87.2 per cent of the S$0.47 million construction cost of the centre.

• The AGO called the consultancy fee “exceptionally high”, and said the NAC directly engaged consultants for the additional services without first conducting a cost assessment.

• Its supervising ministry, then the Ministry of Information, Communications and the Arts (MICA), did not have a robust assessment of the consultancy fee. It benchmarked the fee against more complex projects.

• The Ministry of Culture, Community and Youth (MCCY), which now oversees the NAC after a restructuring, cited the complexity and expertise needed for the bin centre, and the effort to coordinate with multiple parties as reasons for the higher fee. The AGO noted there was no documentary evidence these reasons were considered then.

• Going ahead:

 > The NAC said it would include relevant cost assessments when seeking approval for procurement.

 > The MCCY said it would adopt the norm for cost assessment of consultancy fees and provide justifications where there are good grounds for deviation.

• The NAC also allowed 47 instances of alterations to the scope of works under two construction contracts to be carried out prior to approval.

• The 47 variations were estimated to be valued at S$4 million, and were among 164 variations made to the contracts. The delays in obtaining approval ranged from 12 days to 3.5 years.

LAND TRANSPORT AUTHORITY (LTA)

The AGO found that the LTA failed to ensure proper collection of tolls at Woodlands and Tuas checkpoints.

• Tolls at Woodlands and Tuas were under-collected by an estimated S$13.93 million in financial year 2014/15 — almost 22 per cent of total tolls collected that year.

• AGO’s site audit showed that there was no effective system to ensure that vehicles pass immigration booth only after fees were paid

• The LTA has agreed to review controls and enforcement over toll collection.

HOUSING AND DEVELOPMENT BOARD (HDB)

The AGO identified lapses in HDB’s collection of parking fees at residential and industrial estates.

• At five car parks at industrial estates, the AGO found 113,103 instances of vehicles not charged parking fees. An estimated S$159,000 was not collected between April 2014 and August 2015.

• At 59 residential car parks, the AGO found 2,501 instances of non-payment upon exit between April and September 2015 on more than three occasions a month.

• The HDB has begun a thorough analysis of reports from car park operators, and made police reports against motorists who deliberately tried to evade parking fees in industrial areas.

MOE – NANYANG POLYTECHNIC (NYP)

NYP’s practices showed a “disregard for financial controls and proper governance”, the AGO said, pointing to conflict of interest in transactions with a subsidiary and donations raised for unauthorised purpose.

• NYP had no guidelines for its Board of Governors (BOG) to manage conflicts of interest.

• There was no proper governance framework to manage transactions with its subsidiary Nanyang Polytechnic International Private Limited (NYPi).

• Two NYP senior officers — who were also NYP’s BOG members — and three BOG members who were directors of NYPi took part in decisions relating to funding and other transactions related to the subsidiary.

• NYPi received “hidden subsidies” and excess funds totaling S$8.38m since March 2015.

• NYP said would put in place a proper governance framework, including a requirement for BOG members with potential conflict of interest to recuse themselves from decisions relating to NYP’s subsidiaries.

• NYP also allowed the name of ‘Nanyang Polytechnic Education Fund’ to be used to solicit donations amounting to S$286,300 for a purpose not authorised under the Fund.

• Following the AGO audit, NYP said it is currently working with MOE and the event organiser engaged in the fund raising event on appropriate remedial actions.

The AGO also identified irregularities, overpayment, lapses and wastage at the Law and Home Affairs ministries. The Intellectual Property Office and the Civil Service College were also called out for lapses in procurement and administration of course/trainer fees.

The AGO’s report is available here: http://www.ago.gov.sg/docs/default-source/report/18599c06-73f0-4965-a32b-db9394110e4a.pdf