Court-appointed auditors sought to safeguard AHPETC grants

SINGAPORE— In an unprecedented move described by accountancy and corporate governance experts as rare even in the corporate sector, the Ministry of National Development (MND) today (March 20) applied to the court to appoint independent accountants to safeguard government grants to Aljunied-Hougang-Punggol East Town Council (AHPETC).

Should the court grant the application, which imposes several conditions that AHPETC have to fulfil, the MND will disburse the service and conservancy charges (S&CC) grants for financial years 2014 and 2015 which have been withheld so far from the town council. 

The MND’s application came after the Auditor-General’s Office (AGO) found major lapses in AHPETC’s financial management, governance and compliance with the Town Council Act. The AGO audit report concluded that “until the weaknesses are addressed, there can be no assurance that AHPETC’s accounts are accurate and reliable, or that public funds are properly spent, accounted for and managed”. 

Responding to media queries, the MND said it has proposed that the court appoint Mr Ong Chao Choon and Mr Chan Kheng Tek from PricewaterhouseCoopers to be independent accountants, or any other people the court deems fit and proper. 

The independent accountants will not take over the operations of AHPETC, nor will they seek to remedy problems flagged by the AGO and AHPETC’s auditors. These remain the responsibility of AHPETC’s town councillors, the MND said today.

Nevertheless, with the appointment of the independent accountants, there will be proper safeguards to ensure that the grants are properly managed and spent, “while AHPETC takes time to rectify the lapses identified in the AGO report”, the ministry said. “This is to ensure that there is no disruption in essential services to residents,” it added.

Among other things, the ministry is asking the court to empower the independent accountants to look at past payments made by the town council and with the permission of the court, to take appropriate action to recover losses suffered by AHPETC and its residents - such as requiring AHPETC to produce evidence that payments are lawful, or demanding the recovery of monies that were improperly paid out. 

AHPETC will also have to keep the Government grants in segregated accounts for sinking funds and operating funds. Payments out of these accounts exceeding S$20,000 will have to be co-signed by the independent accountants. 

In the originating summons served on the AHPETC today, the ministry also sought the courts to declare that it has a legal interest in grants disbursed to the town council and in ensuring that AHPETC’s payments of town council monies are lawfully made and properly authorised.

In June last year, AHPETC had requested that MND disburse the S&CC grant for FY2014 without further delay. The town council said that the continued withholding of the grant is “likely to critically and adversely affect (the town council’s) cash flow position”. 

S&CC grants are allocated to town councils based on the number of HDB flat units and flat types in their wards, with smaller flats getting higher grants. AHPETC gets about S$7 million in S&CC grants each financial year, the MND said.

Last month, National Development Minister Khaw Boon Wan tabled a motion on the audit report of AHPETC. Members of Parliament noted with concern the AGO’s findings, and unanimously called on all town councils to uphold high standards of accounting, reporting and corporate governance. 

During the debate, Mr Khaw instructed AHPETC to take immediate steps to resolve problems identified by the AGO, including commissioning a forensic audit. The town council has not indicated that it is willing to take these actions, said the MND.

On MND’s court application, NUS Business School Associate Professor Mak Yuen Teen said: “This is what is sometimes called a ‘special purpose audit engagement’. Whereas an ordinary independent audit is designed to express an opinion on financial statements... this is narrower in purpose but in more depth, looking at specific transactions.”

In general, the appointment of an independent accountant would mean stronger control over the distribution of funds within an organisation, said Mr Gerard Ee, chairman of the Institute of Singapore Chartered Accountants. In this case, it means that the interests of the residents of the AHPETC constituencies are better looked after, he said. “The suggestion is that grants should be kept in a separate account, and the independent accountant would be one of the signatories to ensure that the disbursement out of that account is for valid payments,” he said. 

Mr Ee said that it was not common for commercial companies to name independent accountants as signatories, as it would mean “very strong internal control” over the firm’s funds. Companies usually appoint signatories from within their organisations, for different levels of authorisation, he said. “I personally do not know of another case (in Singapore) where a company has appointed a signatory from outside of the organisation to provide that control process,” Mr Ee said. “From the principle of it, it enhances control as the independent accountant will ask a lot of questions to satisfy himself or herself that the payment is made for valid purposes.” 

On MND seeking the court to grant the independent accountants power to investigate past payments made by AHPETC and take appropriate action to recover losses, Mr Ee said that the team of independent accountants appointed - if the court approves MND’s application - would likely have to possess forensic accounting skills. 

The pre-trial conference on MND’s application will be held at the High Court next Friday.