Closing Statement by Minister Khaw Boon Wan on the Motion on AGO Report on the Audit of AHPETC

Feb 13, 2015

Mdm Speaker, over the last two days, we heard several, serious speeches on a serious topic. After all, this is the first time in our history that the Auditor-General had to conduct a special audit on a Town Council (TC). Findings of incompetence and inadequacies in corporate governance were uncovered. The sorry state of affairs in the Aljunied-Hougang-Punggol East Town Council (AHPETC)’s financial administration and its systemic nature bear grave implications, not only for the residents but also for the sustainability and viability of the Town Council governance framework as we know it today.

Institutions that collect and spend public money must always ensure a high standard of transparency and accountability. Institutions are not perfect and there is always scope to improve and occasionally, they may even make mistakes. Where there is criminal intent, the law will take its course. When mistakes are made, we expect the leaders in charge to take ownership and admit them and to promptly institute changes to avoid any repeat.

I thank MOS Sam Tan and Mr Liang Eng Hwa for reminding the House of the honour and privilege of being elected MPs, and of our duties and responsibilities as Town Councillors. As MPs, we set the tone and the standard of corporate governance in our respective TCs. As the Chinese saying goes: “上梁不正下梁歪” (if the top beam is not straight, the lower beams are bound to be crooked). If the leader sets a bad example, or condones bad behaviour by his senior staff, the other subordinates will likely follow suit.

Mr Hri Kumar voiced his grave concerns over the poor state of affairs in AHPETC. He shared his years of experience dealing with wrongdoings in the commercial world, and related them to the current saga. He highlighted the potential risks of abuses that the TC was in, if its weaknesses are left unrectified. He and others wondered how the MPs there could have allowed such lapses to happen, and to persist for so long.

Indeed, it is sad reading the Auditor-General’s report, especially the appendices where the AHPETC was asked to respond. Not only are the AGO’s findings troubling, but the defensiveness of the AHPETC in response to these findings suggests that instead of just taking ownership and be resolved to rectify the problems uncovered, the AHPETC is constantly looking for excuses to mitigate and rationalise the lapses.

But it is sadder listening to their speeches yesterday and today. I was initially cheered by Mr Low Thia Khiang’s declaration that WP would support the motion. I thought finally they have acknowledged the mess they are in and their residents can now look forward to eventually be out of the hole. But my optimism was short-lived. He then went straight into a political speech, playing the victim of an unfair political world created by the Government, and calling for the depoliticization of the transition process. And soon after, Ms Sylvia Lim and their other MPs spoke, repeating their objections to the AGO findings, objections which were already rebutted explicitly by AGO and documented in the AGO report. They were recycled in this House, in the hope, I presume, that not many people would have read the appendices where such exchanges were recorded.

This consistent pattern of evasive behaviour gives us cause to doubt the sincerity of the AHPETC MPs when they come to this House to declare their support for the motion and assure that they will make necessary changes. Madam, I am a forgiving man and I listened very carefully to their speeches, hoping to find some trace of sincerity and genuine remorse. Sadly, I found none. Instead there was a certain arrogance, a disdain for having to come and address this House to answer for the adverse findings of the AGO audit. Yesterday Pritam Singh’s refusal to reply to our Law Minister Shanmugam’s questions was classic: “Well Minister, if you were a resident, I will answer your question”! If there is no remorse, there can be no genuine acceptance that one is at fault and that one is morally if not duty-bound to make things right.

It reminded me of my days running hospitals. Often I got to meet some diabetic patients, at risk of further complications leading to blindness, organ failure. Some of them avoided, or were able to avoid the complications by taking charge of their illness, changed their lifestyle, ate healthily, more brown rice, exercised regularly. But unfortunately for some, even as they assured their doctors of compliance, “Yes I will do this, I will improve”, actually just lived in denial, only to see their health continually deteriorate. And because I stayed in Ministry of Health for so many years, I got to see those patients eventually and predictably, ending up chronic kidney failure, dialysis patients. Very sad. Could have been avoided but they realised it only when the organ finally failed. It was too late.

Gravity of the situation

Madam, I would urge that the AHPETC come out of denial and see the gravity of the situation for what it is. The AGO findings are not trivial. The lapses are symptomatic of a systemic failure: the failure to have proper controls and a reliable record and accounting system. This is the staple that every TC must have in order to operate. How else can you safeguard public monies? Indeed, the AGO’s conclusions are that until those weaknesses are addressed, AHPETC cannot safeguard public monies; its accounts are inaccurate and unreliable.

In 1989, when we created the Town Councils (TCs), then-DPM Goh Chok Tong explained in this House that the strategic intent was to empower elected Members of Parliament (MPs) to be responsible for and be a part of governance of Singapore. It is to allow the MPs to demonstrate to the residents their ability to govern. All political parties, we assume, must aspire to eventually run the Singapore Government. Now, if they cannot even run a TC well, how can they be entrusted with the even more critical responsibility of running the whole country?

By vesting the TCs with powers to manage the HDB estates, the Government hands over significant authority to the MPs: powers to set and enforce by-laws; powers to collect Service and Conservancy Charges (S&CC), authority to procure and deliver programmes and services for their residents. A dysfunctional TC can have grave consequences for the residents.

In the past 25 years, there have been TCs run by PAP, as well as by opposition MPs. While there were occasional hiccups, the TC framework has generally served us well. This is because there was a common understanding that each MP would assume his duty of running a town council seriously. There was also a common understanding of the role of TCs, that while they exercise autonomy, they are not sovereign bodies above the law. They must work in keeping with national policies, national interests and the law. They are certainly not a local warlord, above the law and accountable to only themselves.

AHPETC failed in their duty

The AGO audit findings confirmed the sad state of the situation at AHPETC. At the core of this tragic saga is the incompetence of its Managing Agent (MA), the FMSS. Its incompetence spawned the many symptomatic lapses that the Auditor-General had observed in the TC.

The FMSS as we heard yesterday is very highly paid. And what a sterling service the FMSS has rendered the TC! It cannot even deliver a competent reliable system and administration of accounts and records. Without a reliable accounting and financial management system, there will be financial and accounting lapses, and opportunities for fraud, abuse and wrong-doing. And in such a setting, when wrong-doers dip their fingers into the pie, the acts may not be discovered for a long time. If I may quote another Chinese saying: “混水摸鱼” (when the water is murky, it is easier to fish). In other words, opacity creates opportunities for crooks to make money. Eventually the financial health of the TC will be placed at risk. This can only be at the expense of the residents.

That is why we require all organisations to prepare fully audited financial accounts, unqualified. Unfortunately, the Town Council had not been able to do so for several years. Mr Liang Eng Hwa puts it succinctly - FMSS has severely short-changed the TC. The residents there pay more, and get less!

Minister Shanmugam probed further and asked about the financial position of FMSS, and whether FMSS would publish its accounts. Minister Heng did the same thing just now. And as we heard, there was no reply. I bet the FMSS is one of those rare companies which is profitable from year one. If my guess is correct, we can safely assume where the husband-and-wife team places their priority. To preserve the peace with the residents, they work on the visible aspects of TC work: clean the floors, maintain the lifts. And in any case, such work is not done by them, it is outsourced to external contractors, and in fact the FMSS is paid to oversee them. As for the invisible aspects of TC work, the residents don’t get to see, like corporate governance, accounting procedures, timely payments into the Sinking Fund, and reducing operating deficits, they probably figure that such things being out of sight can wait. But this is also at the expense of the residents, though the effects may not be obvious immediately. It is only as a result of their own auditor’s disclaimers and now the deeper findings of the AGO audit that we have sight of the mess that they have been hiding from all of us.

Minister Shanmugam gave us a vivid analysis of the intrinsically troubling structure of FMSS and its relationship with AHPETC. He is our Law Minister. He said in this House, that the structure is downright unlawful, and that it is a serious breach of fiduciary duties for any Town Councillor to have approved such a process. Inflated fees were paid to the FMSS, in return for gross incompetence, placing the Town Council’s financial health at risk. The excess fees paid to FMSS, we have heard, were estimated at $1.6m per year. So in 4 years, it is 6.4million. 1-6, 6-4. 1.6 million a year, 6.4 for 4 years. 1-6, 6-4. In 3 short years, the TC’s finances deteriorated from a $3.3 million surplus to a deficit of almost three-quarter million dollars. In short, FMSS and its owners who de facto run the TC have milked it, and residents’ money and public funds have in this manner been abused. That was the conclusion and the statement by Minister Shanmugam. So he asked, in this House yesterday, he asked the elected MPs whether they were aware of this governance structure and process. No answers! Whether collectively or individually. Instead, we were inundated with speeches, over several hours, minutiae details, details which are already recorded in the appendices of the auditor’s report. Minutiae details which they have also offered to the Auditor General, many of which have been rejected by them. But they recited it here, and conveniently kept silent on the key questions put up by the Law Minister.

WP MPs had made light of the AGO findings when they asserted yesterday that AGO had found no evidence of loss of money or fraudulent activity. But we have now heard, this is a mis-representation of AGO’s conclusions. Mr Hri Kumar highlighted this point too. AGO pointed this out in Appendix A of its report when the WP tried to put such words in AGO’s mouth. AGO did not draw such a conclusion, that there was no loss of money or fraudulent activity. In fact, with so many documents missing, and the accounts unreliable, who can be sure that there was no wrongdoing?

Instead of making such an assertion, attributing a conclusion to the AGO audit which in fact the AGO had categorically rejected, Mr Low or Ms Sylvia Lim should just roll up their sleeves and do real work: mount a serious forensic investigation, as suggested by Mr Hri Kumar, forensic investigation into its records and pursue all the findings of the AGO report, clean up the accounts, correct the flawed structure, institute a robust system, discipline any errant officers, get the MA to return the money, explain to their residents. They have a lot of work to do.

While the incompetence of FMSS, the MA, caused all these problems, it was in the end only the proximate cause. The primary cause was unfortunately the dereliction of duty by the Town Councillors, condoning this, allowing it to happen, and then making excuses for it when uncovered, instead of putting things right. Only they, the Town Councillors, can unwind the mess. If I may borrow another Chinese proverb, or saying: “解铃还需系铃人” (only he who attached the bell can remove it).

The systemic failure at AHPETC resides in the arrangement that they have allowed – the de facto management of AHPETC being also the owners of the MA, resulting in the adverse outcome of over-charging and the obvious ineffectiveness of any oversight by the Town Councillors. The result is the deteriorating financial health of the town council, with all signs suggesting it is only going to get worse this year and the next.

If a listed company has such an auditor’s report, the Chairman of the company will be duty bound to investigate and to satisfy himself and his shareholders whether fraud or criminal conduct was involved. In this instance, the ball is in the Workers’ Party’s court.

Regardless, we must not allow the FMSS to profiteer from their incompetence, all the more when it is at the expense of residents and public monies. Even if it was not illegal, it is morally wrong. Mr Low should not condone this. He should hold his Managing Agent accountable. I expect him to take action against the FMSS for their monumental incompetence. That would be the right thing to do. Mr Hri Kumar tried to be helpful and describe a roadmap forward for them to follow.

Meanwhile, I welcome Mr Low’s support of the Motion. But he must walk the talk, if I may borrow Law Minister Shanmugam’s words yesterday. It cannot be just lip service, a convenient way of sliding past this debacle, to live and fight another day. Demonstrate your sincerity through real actions. There is another Chinese saying for this: “听其言，观其行” (watch his actions, even as you are listening to his words). How to show sincerity?

a. Take concrete steps to recover the losses that they have allowed to take place. Make restitution to the residents for the losses to their Town Council.
b. Submit a clean set of accounts for FY 2013 to Parliament by June 30th this year. Submit your accounts for FY 2014 on time, like all the other Town Councils, by 31 Aug this year. Account to Parliament, account to your residents, here in this House.

These are not high hurdles. These are the basic requirements for any organisation, for anyone seeking to run for office in any organisation. Every Town Council has been able to do this, including those run by Opposition MPs in the past. This is what supporting the Motion means.

Mr Liang Eng Hwa said that he would call for a division when the vote on the Motion is taken. I support his call. This is a matter on which it is important for each one of us to take a stand explicitly.

Concluding Remarks

Madam Speaker, this has been a very painful debate but if our discussions have given us pause to reflect on our responsibilities as MPs and as Town Councillors and strengthen our resolve and determination to do better, regardless which party we belong to, then something good may yet come out of all this.

Let us support the motion. This motion is not about PAP versus WP. This motion is about Singaporeans. This motion is about our residents. Let us do our very best to uphold high standards of governance, transparency and accountability so that we can protect their interests. Let us do our best to protect, safeguard all the public monies that have been entrusted to our Town Councils.

I beg to move.