Financial controls not up to mark even if residents were satisfied with AHTC’s services: KPMG’s accountant

SINGAPORE — While he had seen for himself that estates managed by Aljunied-Hougang Town Council (AHTC) are not “some kind of Mad Max (movie scene) or wasteland” and look “perfectly” like the rest of Singapore, that should not mask the reality that town councillors did not do a good enough job in instituting financial control and governance.

Mr Owen Hawkes, a forensics partner with audit firm KPMG, was visibly exasperated and kept repeating this message as he took the stand for the fourth day in the trial of opposition Members of Parliament (MPs) Low Thia Khiang, Sylvia Lim and Pritam Singh.

The three MPs from Workers’ Party (WP), in their capacity as town councillors, are alleged to have breached their fiduciary duties, in managing the money and assets entrusted to them.

They are involved in two multi-million-dollar lawsuits over alleged improper payments to AHTC’s former managing agent FM Solutions and Services (FMSS) and third-party service providers.

Another group of defendants named in the lawsuit are FMSS itself and the company’s owners Danny Loh and How Weng Fan. Ms How was AHTC’s deputy secretary and general manager, while her late husband Loh was its secretary.

On Thursday (Oct 11), Mr Leslie Netto, lawyer of FMSS and its owners, presented Mr Hawkes with evidence after evidence of how the services performed by FMSS were satisfactorily delivered.

Having given the same answer at least three times during the lawyer’s cross-examination, Mr Hawkes was finally done “flogging the same horse”, in his own words.

For one last time, the accountant told the court that the job of a managing agent does not end with fulfilling the needs of residents.

“From the residents’ point of view, it is that lifts work, streets are clean, walls are painted. But from the perspective of governance of the town council, financial reports and financial controls are vital,” Mr Hawkes said.

Mr Netto then asked if he had checked with AHTC if it was “totally satisfied with the performance of FMSS”, and Mr Hawkes gave two instances of the times when AHTC did not seem happy with the managing agent’s service.

He said “the most pertinent example” was when AHTC withheld S$250,000 in fees to FMSS in 2015 as a “settlement” to make up for the firm’s deficiencies in its service levels — which were identified in an Auditor-General’s Office (AGO) report dated Feb 6, 2015.

NO RESPONSE TO SYLVIA LIM’S REQUEST

After the AGO report was out, Ms Lim sent two correspondences to FMSS owner Loh — a letter on March 17, 2015 and an email on June 10, 2015. She mentioned the liquidated damages payable, but Loh did not reply.

In the letter, Ms Lim wrote: “Please let us have the credit note and adjustment to future billings at your earliest convenience.”

In the email, she mentioned that FMSS should deduct S$250,000 from its claim.

Despite the silence from FMSS, AHTC sent the firm an invoice for S$250,000 on July 16, 2015.

Ms How later informed KPMG that FMSS did not agree to any such settlement, while AHTC told KPMG that it accepted the S$250,000 on the basis that it was the maximum amount that Loh was able to approve without having the agreement of other directors in FMSS.

Mr Hawkes said: “That doesn’t indicate satisfaction for me. (Quarter of a million) is not a minor amount of money. If the bank took it from me, (it would spell) serious trouble.”

In his second example, Mr Hawkes said he told AHTC staff members that more than S$60 million in payments — mostly pertaining to utility bills — bypassed accounts payable and were recorded through an extensive use of manual journal entries.

“They appeared concerned after I explained (it) as a significant control weakness… I think it was pretty clear at that time that they were not happy,” he added.

When Mr Netto presented him with a few examples from more than 1,000 documents, to show the financial controls in place, Mr Hawkes said: “But what you don’t see here is an active testing of how financial controls of the managing agent are working in practice.”

‘CONFUSION’ OVER WHO SHOULD SIGN DOCUMENTS

In the same vein, the second witness who was called to the stands on Thursday afternoon slammed AHTC for its lack of a proper framework for financial governance.

Mr Goh Thien Phong from accountancy firm PricewaterhouseCoopers (PwC) had led a team to review the past payments of AHTC — then known as Aljunied-Hougang-Punggol East Town Council — during the period when WP won a by-election and took charge of the Punggol East ward between 2013 and 2015.

The accountant told the court: “You must have a consistent policy to be followed. It (should not be) up to each individual’s, should I say, whims and fancies to sign on one report and not another.”

He was referring to how the lack of a written standard operating procedure had caused “confusion” over who was supposed to certify or authorise certain documents. This resulted in 56 invoices amounting to more than S$674,300 not being signed by the right individual, he said. Amounts on the invoices ranged between S$500 and S$100,000.

“Some said the officer can sign. Some said the manager (should) sign. (Out of 200 invoices sampled), 144 were signed by a manager. Only 56 were signed by an officer,” he said.

Senior Counsel Chelva Rajah, who is defending the three MPs, questioned why Mr Goh assumed that it is a hard rule that invoices had to be signed by the head of department.

The Town Council Financial Rules, that Mr Goh said AHTC had flouted, stated that it is the responsibility of the head of department to “satisfy himself” that the prices charged are either according to contracts or approved scales, or are fair and reasonable according to current local rates.

“All you have to do is to comply with essence of it, not with the form. (These are) substantive requirements, and not procedural requirements,” Mr Rajah told the court.

Mr Goh said: “I do agree with you on this, but there must be evidence (that the head of department is satisfied). Signing on the work order doesn’t mean he is satisfied with what had been invoiced… As auditors, we need to see evidence.”

PHOTO EVIDENCE OF WORK DONE

On another matter of producing evidence, PwC noted that there were invoices which did not come with supporting evidence of work done. Mr Rajah pointed to 12 of such invoices and noted that half of them, totalling slightly more than S$5,000, were for the setting up of a polling station during the 2015 General Election. This sum was reimbursed by the Housing and Development Board.

Mr Goh said: “We know the nature, but there should still be evidence of work done.” There should be photo evidence to verify that the work was completed satisfactorily, he added.

Mr Rajah then said: “Even after the polling day had come and gone (and no one raised issues) — based on that fact itself, you couldn’t tell that the work had been done?”

Mr Goh replied: “Yes, (because) there were no photographs to show that work had been done.”

Mr Goh's cross-examination resumes on Friday.