Town council has put in place remedial measures for most

The first report by audit firm KPMG — appointed by the Workers’ Party-run Aljunied-Hougang Town Council (AHTC) to remedy compliance and governance lapses – has highlighted 17 instances in which the town council failed to comply with rules set out in the Town Councils Act and financial rules governing town councils.

The root causes of the breaches identified fall under four categories: The AHTC’s governance framework and policy management; its accounting practices; its finance department’s capabilities and ability to retain staff holding managerial positions; and the town council’s accounting platform that records and accounts for transactions made.

Remedial measures have been taken by AHTC to set these lapses right. Following their implementation, two areas were deemed by KPMG to be “resolved”, the audit firm said in its first Monthly Report on Progress made public by the town council on Saturday (April 16). These pertained to weaknesses in controls over received cheques and access to the town council’s strong room and safe, as well as the failure to conduct surprise examinations in accordance with Town Council Financial Rules.

Of the 15 remaining areas, three – including the reconciliation of direct and indirect tax – remain “open”, meaning the audit firm has not started reviewing and testing the measures put in place by AHTC.

Last November, the courts had ordered AHTC to appoint an independent accountant to fix compliance and governance lapses following a protracted legal tussle. On March 1, the town council appointed KPMG, whose task is to identify its outstanding non-compliances with the Town Councils Act and advise it on appropriate remedial steps, among other things. KPMG must put out monthly progress reports on its work on the fifteenth day of each month.

In its inaugural report, KPMG said the town council had informed the firm that it has had difficulties recruiting and retaining managerial staff in its finance department. The audit firm noted that at the time of the audit’s commencement, the department comprised 20 staff. “Nine non-management personnel were transferred from FMSS (the previous managing agent) in July 2015. 15 new staff members were subsequently hired (four of whom have since resigned),” the KPMG said. The town council did not have a finance manager. It had a deputy and an assistant finance manager, but the latter left the position last month.

KPMG said the department’s high staff turnover had partly resulted in the “loss of institutional knowledge about the historical business and transactions” of the town council and an inconsistency in the approaches to accounting practices and controls over time, among other things.

AHTC has since recruited a second deputy finance manager, and is strengthening the management of the department by hiring more managerial staff and appointing two consultants to assist in fixing outstanding book-keeping matters.

Another area covered by the audit was the management of the AHTC’s sinking fund. Under requirements stipulated by the Town Councils Act and Town Council Financial Rules, town councils must set up separate sinking funds for improvements to, and the management and maintenance of, residential and commercial properties, including cyclical major repainting and the replacement of water tanks and pumps, among other things.

Transfers to AHTC’s sinking fund include the service and conservancy charges (S&CC) it receives from residents and commercial tenants, which must be transferred from its operating fund within a month of the end of each quarter.

On a number of occasions, AHTC had not transferred, or only partly transferred, the funds to its sinking fund. Except instances where these were the result of calculation errors, this was due to the AHTC lacking sufficient funds as a result of the Ministry of National Development’s (MND) withholding of S&CC operating grants.

On Thursday, the MND announced it would disburse two years of grants it withheld from AHTC, with about S$12.9 million paid out on that day. AHTC has agreed to establish a policy for transfers to its sinking fund by the next monthly report in May, which will include standardised documentation and supporting documentation requirements for the calculation, review and approval of such transfers.

In January, the town council also implemented guidelines on the types of expenses for which the sinking fund may be used, although tests by KPMG are still ongoing.

ACCOUNTING LAPSES

KPMG also observed that the town council did not have written policies for the handover of duties and accounting records. To this end, AHTC has implemented a department-level staff exit clearance form, in addition to other measures. The town council will also put in place written policies and supporting procedures for the handing and taking over of duties and records, among other things, with implementation targeted to be completed by July.

On the untimely recording of lift repair and upgrading expenses, and the absence of guidelines for the verification of works and the issuance of work orders, AHTC has drawn up process flow charts for the closing of work orders and invoicing, among other things. The town council will implement policies and procedures to “ensure its expenditures are accounted for in a timely manner and in the correct accounting period” by the financial year ending 2017.

Source:
courtesy of TODAY

by Kenneth Cheng

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