MND Statement on FMSS' Accounts
Aug 29, 2015
Following an Accounting and Corporate Regulatory Authority’s (ACRA’s) ad-hoc review of FM Solutions & Services’ (FMSS) auditor, Teo Liang Chye & Co, the Ministry of National Development (MND) has found that FMSS has been grossly profiteering off its sole client, Aljunied-Hougang-Punggol East Town Council (AHPETC). In FY13/14, while AHPETC suffered an operating deficit of $2.0 mil, FMSS made a net after-tax profit of $2.0 mil, after paying its directors/shareholders fees and salaries amounting to $1.14 mil.
FMSS was the Managing Agent (MA) for AHPETC from 15 July 2011 to 14 July 2015. In AHPETC’s FY13/14 Financial Statements and Reports, its independent auditor, Audit Alliance LLP, found that the TC’s Deputy General Manager, who was also a shareholder and director of FMSS, certified invoices received from FMSS totalling $2.1mil on behalf of the TC, and subsequently also approved the related payment vouchers by the TC to FMSS, with no segregation of duties. This reinforced MND’s concerns about the TC’s state of financial management, and in particular, whether payments made by the TC to FMSS were valid and proper. On 9 July 2015, shortly after MND received the Financial Statements and Reports, MND wrote to ACRA to ask if ACRA had any concerns about the quality of FMSS’ accounts and the audit process that validated them.
In response, ACRA commenced a practice monitoring review on FMSS’ auditor, Teo Liang Chye & Co, on 14 August 2015, after giving them one month’s notice. ACRA has completed its review and surfaced its findings to MND on 27 August 2015.
On examining the accounts, MND has found gross profiteering by FMSS, at the expense of AHPETC, its sole client:
For FY12/13
FMSS made a profit after tax of $510,904. This was after FMSS paid its three Owners/ Directors1, fees and salaries of $702,295, and consultancy & secretarial fees of $300,0002.
Total payments to the three FMSS Owners/Directors for FY12/13 amounted to $1,513,199.
For FY13/14
FMSS made a profit after tax of $2,035,784. This was after FMSS paid its four Owners/Directors3, fees and salaries of $839,696, and consultancy & secretarial fees of $300,0004.
Total payments to the four FMSS Owners/Directors for FY13/14 amounted to $3,175,480.
Between FY12/13 and FY13/14
While FMSS’ revenue increased by 30% in one year, from $6,740,572 to $8,773,429, its profit after tax rose 300%, from $510,904 to $2,035,784.
MND observes that the total payments by AHPETC to FMSS Owners/Directors amounted to 22% of FMSS’ revenue in FY12/13. It grew further to 36% in FY13/14. Such levels of profit margin are abnormal. As AHPETC was FMSS’ only client, these findings support MND’s earlier concern that the TC had overpaid FMSS excessively. In addition, MND notes that AHPETC had an operating deficit of $1.5 mil in FY12/13, and a further deficit of $2.0 mil in FY13/14. Had the TC not overpaid FMSS, it might well have had been able to break-even.
As FMSS earned its revenues solely from AHPETC, and FMSS’ Owners/Directors also held key management positions in AHPETC, MND has written to Ms Sylvia Lim, Immediate Past-Chairman of AHPETC, to ask if she was aware of the extent of profiteering in FMSS, and if so since when had she known, and what she had done about it. In addition, as AHPETC had terminated its contractual relationship with FMSS, MND has also asked Ms Lim if she has examined past transactions of the TC with FMSS, and how she intend to recover the monies lost due to any overpayment.
As FMSS was paid using Service & Conservancy Charges (S&CC) collections from residents and S&CC operating grants from MND, public monies are at stake. What happened between the TC and FMSS is not a private matter, but one which MND needs to look into. MND is therefore making a public statement on this matter of public interest, which underscores why MND has applied to the Court to appoint Independent Accountants.
Background Info on FMSS
FMSS was incorporated on 15 May 2011 as a limited exempt private company. As a limited exempt private company, FMSS did not have to file its accounts with ACRA. FMSS’ main shareholders were the late Mr Danny Loh and his wife, Ms How Weng Fan. Together they owned 70% of the shares of FMSS. During the period when FMSS was the MA for AHPETC, the late Mr Loh and Ms How were also the TC’s Secretary and General Manager (GM).
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1The shareholdings as at 1 May 2013 were the late Mr Danny Loh 60%, Ms How Weng Fan 20%, and Mr Yeo Soon Fei 20%.
2For FY12/13, on top of Directors fees and salaries, the late Mr Danny Loh was also paid $180,000 in secretarial fees, Ms How Weng Fan was also paid $108,000 in consultancy fees and Mr Yeo Soon Fei was also paid $12,000 in consultancy fees, a year.
3The shareholdings as at 30 April 2014 were the late Mr Danny Loh 50%, Ms How Weng Fan 20%, Mr Yeo Soon Fei 20%, and Mr Lieow Chong Sern 10%.
4For FY13/14, on top of Directors fees and salaries, the late Mr Danny Loh was also paid $180,000 in secretarial fees, Ms How Weng Fan was also paid $108,000 in consultancy fees and Mr Yeo Soon Fei was also paid $12,000 in consultancy fees, a year.