Town Councils (Amendment) Bill 2017 2nd Reading Speech By SMS Desmond Lee
Mar 10, 2017
Mdm Speaker, I beg to move, “That the Bill be now read a Second time.”
The Town Councils Act, administered by the Ministry of National Development, establishes the legal framework for Town Councils to control, manage, maintain and improve the common property of HDB housing estates, for the benefit of residents living in those .
Recap: Why Town Councils?
When Town Councils were formed in 1989, the intent was to give elected MPs the autonomy and latitude to run their own towns.
- MPs were empowered to engage residents directly, understand their concerns, and work with them to shape their living environment.
- Each Town could then develop a distinctive character of its own, under the MPs’ stewardship.
- In turn, MPs would be directly accountable to their constituents for their performance, through the ballot box.
To quote then First Deputy Prime Minister Mr Goh Chok Tong at the Parliamentary debate in 1988:
“This Bill will contribute to the attainment of the two philosophical objectives.
First, it transfers some power from the HDB to the MPs and grassroots leaders. It gives them, and the residents, greater power and responsibility to manage their own affairs and to participate in their estate's development.
Second, because MPs will have increased authority and responsibility, voters will be more likely to vote carefully and sincerely, and to choose honest and effective MPs.”
Mr Goh added that the formation of Town Councils would provide political parties without any track record with a platform to prove their mettle. To quote him, “If a party can manage Town Councils well, it will prove its competence in at least one area – good administration, which is the prerequisite of any government.”
Impetus for the Review
Mdm Speaker, the d’être of Town Councils remains relevant today. Through Town Councils, MPs and Town Councillors have partnered residents to shape their living environment, respond to residents’ needs, and enhance their sense of belonging to the community.
However, over the past 28 years, we have learnt useful lessons from the management and operations of Town Councils.
Today, Town Councils serve more than 3.2 million residents, and collectively manage over $1.6 billion worth of public and residents’ monies. This is a significant increase from 2.4 million residents and $300 million in the early 1990s.
Residents’ expectations of their Town Councils have also risen. They expect greater accountability and better performance, especially in areas such as estate cleanliness and maintenance, where the results are visible and immediate.
But the challenge lies in less tangible areas, like financial management and corporate governance. These are just as important, if not more, given the potential downstream impact of financial insolvency and loss of public funds if Town Councils are not managed well.
But governance lapses and poor management of a Town Council’s finances could remain unnoticed until much when significant damage or losses have already occurred. Ultimately, residents are the ones who will be saddled with the consequences.
So residents have a right to expect responsible governance from their Town Councils. As public institutions entrusted with millions of dollars received from residents and the Government, Town Councils should be held to at least the same standards of governance as charities and publicly-listed companies.
As the former Minister for National Development Mr Khaw Boon Wan said in Parliament in 2015, MND can no longer take a light-touch approach and assume that the people running Town Councils will all be responsible. There is a need to ensure proper systems, accountability and governance to safeguard residents’ interests.
For instance, Town Councils may take the easy way out – make short-term, populist measures, such as lowering Service & Conservancy Charges (S&CCs), at the expense of their long-term financial health and the well-being of residents.
We have also seen in recent years, serious deficiencies in some Town Councils’ governance and financial systems, as well as regulatory breaches, but there were few direct levers to put things right.
While most Town Councils have been cooperative, MND has limited powers under the current Town Councils Act to look into suspected irregularities or enforce the rules set out in the Act if they are not complied with. MND has powers to step in, only as a last resort, and in very limited circumstances.
This is why Parliament unanimously passed a motion in Feb 2015 that called for, among other things, the “strengthening of the legislative framework for Town Councils”.
The amendments to the Town Councils Act seek to address the limitations of the current legislative while adhering to the original spirit and intent of the Act.
Town Councils will continue to manage our Towns and can decide how best to serve their residents’ interests.
But the Act will establish the required standards of transparency, public accountability and performance for Town Councils, and provide more effective oversight of Town Councils to safeguard the interest of residents.
Review Process for the Bill
Mdm Speaker, this Bill caps a detailed review process spanning almost four years.
As early as 2013, we engaged all the Town Councils on key proposals that would impact their operations, such as financial sustainability and Town Council handover arrangements.
The Lift Replacement Fund in this Bill addresses a shared concern raised at one of these sessions, on the adequacy of Town Councils’ Sinking Funds.
Over the last few years, we have heard from Members through debates in this House on Town Council-related issues. We have also received feedback from members of the public on these matters through letters to MND or HDB or to the media; and
More recently, in October last year, MND held a month-long public consultation on the proposed amendments in the Bill. All Town Council Chairmen were also invited to provide their feedback on the proposed amendments. The feedback that was received and MND’s responses to them were also published online.
I would like to thank members of this House and the public for all their contributions and feedback. We have carefully considered all the views and incorporated them where appropriate in the process of drafting this Amendment Bill.
CONTENTS OF BILL
Mdm Speaker, let me introduce the main provisions of the Bill, which I will broadly classify into four categories:
A.
Clarifying Town Councils’ Roles and Functions
B.
Improving Town Councils’ Governance and Accountability
C.
Strengthening Town Councils’ Financial Management; and
D.
Enhancing MND’s Regulatory Oversight.
(A) Clarifying Town Councils’ Roles & Functions
First, the Bill clarifies the roles and functions of Town Councils.
Clause 11 reiterates that the Town Councils’ core function is to manage the common property of their towns, and emphasises that Town Councils are to do so for the benefit of their residents.
In relation to this, the Bill sets out to clarify some areas that are not explicit in the current Act.
First and foremost, Town Councils have a duty of care to their residents.
Clause 12 clarifies that Town Councils are not to carry out commercial activities that are inconsistent with their core functions. Such activities include organising trade or setting up subsidiary companies to carry out commercial activities, which are not related to their core function to manage property. Town Councils are clearly not set up for these purposes and residents should not be made to bear the uncertainties and business risks associated with such commercial ventures.
Some Town Councils have asked if this restriction extends to the fund investments that Town Councils currently carry out to counter inflation. It does not. Town Councils can still invest their funds, subject to guidelines under the Town Councils Financial Rules that limit risk exposure.
Second, Town Councils do not own the common property. Neither is their power unfettered.
Under the existing Act, Town Councils may already set and collect charges but only for uses prescribed by MND, and are not entitled, already, to charge HDB for the use of common property. This will continue to be the case going forward. In addition, it will now be
an offence for a Town Council to impose unlawful charges.
Another area that the Bill will clarify is the Town Councils’ relationships and interactions with HDB and other statutory authorities. It makes two fundamental points clear:
First, as the owner of common property in HDB estates, HDB has landowner rights, including the use and access to property.
Clause 29 reaffirms the status of HDB as and emphasises that Town Councils must not perform their functions or exercise their powers in a way that is inconsistent with HDB’s title and rights as .
Second, Town Councils are subordinate to public law. They cannot hamper statutory authorities carrying out their statutory functions to ensure public health, safety and order, or undertaking works – for instance, Smart Nation initiatives – to improve the quality of life of residents in and around the town.
Clause 14 requires Town Councils to cooperate with these agencies and public officers, and grant them access to and use of the common property.
For instance, allowing NEA to install CCTV cameras to catch or deter high-rise littering.
If a Town Council unreasonably delays, hampers or obstructs the work of the agency or its officers despite receiving ample notice, the agency may have to, with HDB’s consent as , issue a notice to the Town Council.
Non-compliance with the notice without reasonable excuse will be made an offence.
Lastly, the Bill will make it clear that Town Councils have a role to play during public emergencies.
Clause 14 allows MND to direct Town Councils to make emergency-related preparations, for to ensure that essential services remain available. Where reasonable, MND may provide grants or reimbursements to Town Councils to defray costs incurred.
I should emphasise that the provisions that I have just described merely spell out what is already expected of all Town Councils today. They do not curtail the broad autonomy that Town Councils currently enjoy.
The amendments give Town Councils greater clarity on the activities that are part of their core and those that are not.
Town Councils should focus on their core function of managing HDB estates, and not take on unnecessary commercial and financial risks that detract from their core mission.
At the same time, there is no reason why Town Councils, HDB and other public agencies should not work collaboratively to further residents’ interest, or to safeguard public health, public safety and public order.
(B) Improving Town Councils’ Governance & Accountability
Next, let me move on to the provisions that improve Town Councils’ governance and accountability to residents.
The issue of governance of Town Councils has been a subject of much discussion and cause of concern as seen from recent events. This House has spoken and agreed on the need to strengthen the legislative framework for Town Councils. The question is how, and by how much. As a regulator, MND seeks to promote good governance, without unduly hampering Town Councils’ operations and autonomy.
The first suite of enhancements seeks greater transparency and public accountability from Town Councils by raising the standard of disclosure on three fronts – first, key personnel appointments; second, financial reporting and third; Town Councils’ compliance with other governance standards.
First, on Town Councils’ Key Personnel:
Town Councils will be required to notify the public and MND of key personnel changes within the Town Council, through amendments to Clause 10.
Clause 9 of the Bill clarifies the definition and treatment of conflict of interest scenarios.
The new
Section 15A extends conflict disclosure requirements beyond Town Councillors, to committee members, employees of the Town Council, or anyone who is delegated with the responsibilities of the Town Council. This will better manage any risk of conflicts that may arise in Town Councils’ management and operations.
The Town Council Secretary will be required by law to keep a register of all conflict disclosures,
Second, on Financial Reporting:
To strengthen public and regulatory oversight of Town Councils’ finances,
Clause 21 now specifies a time-frame of 6 months from the financial year-end, for Town Councils to submit their audited statements to MND for presentation to Parliament.
Town Councils are also required to publish the statements for public access and viewing.
It will be an offence if a Town Council, without reasonable excuse, persistently fails to submit its financial statements on time.
Third, on Governance:
Clauses 23 and 31 expand the scope of rules that MND can prescribe, and Town Councils must comply with, in the areas of finance and governance. These include rules for Town Councils to disclose their compliance with governance standards.
MND will work with Town Councils to fine-tune these reporting and roll them out in due course.
In particular, we will work with Town Councils to develop a Code of Governance for Town Councils. This will take reference from similar Codes for Charities and Companies, which seek to strengthen accountability and boost public confidence in the respective sectors. The Code will cover best practices that Town Councils are encouraged to adopt, through a comply-or-explain regime.
Besides strengthening disclosure requirements, the Bill also seeks to strengthen internal controls in relation to potential conflicts of interest within a Town Council and related parties.
Clauses 8, 13 and 16 disqualify the Town Council’s Managing Agent and its appointed auditor from concurrently holding key roles in a Town Council, at the Town Council level, Town Councils’ committee and executive levels.
These roles pose a conflict of interest risk, because:
- The Auditor is tasked to conduct an independent and objective assessment of Town Councils’ finances.
- The Managing Agent provides a significant proportion of Town Councils’ services and could stand to gain from how contracts are awarded by the Town Council.
We have intentionally nuanced these prohibitions, as disqualification is a heavy bar.
It is certainly not our intention to stop individuals with the relevant and experience, for example in audit and estate management, from serving residents in the Town Councils.
The scenario that we want to avoid is one where a person wields significant influence or power in two conflicting roles, for example, as General Manager of the Town Council and the Chief Executive Officer or Managing Partner in the Town Council’s Managing Agent.
Non-C-suite executives and other regular employees of the Auditor and Managing Agent are not barred from double-hatting in the Town Council. Nevertheless, we will require, in Clause 9, Town Council staff to make disclosure of interests to the Town Council and to recuse themselves from decision making if there is conflict.
(C) Strengthening Town Councils’ Financial Management
Next, I will move on to enhancements in the Bill that aim to strengthen the way Town Councils manage their finances.
Earlier this year, we announced a series of steps that MND will take to ensure that Town Councils take a long-term view of their finances, and start setting aside monies for big ticket items such as lift and other asset replacements.
The provisions in the Bill give legislative effect to some of these measures.
First, the Bill will require Town Councils to establish a Lift Replacement Fund that is ring-fenced for lift-related replacement and upgrading works.
Clause 18 ensures that Town Councils set aside sufficient funds in the Lift Replacement Fund, or LRF, as lift expenditures are large and back-loaded.
The detailed mechanics of the Lift Replacement Fund, such as the minimum contribution rates, will be set out in the subsidiary legislation.
As announced earlier, additional grants will also be provided to help Town Councils accumulate sufficient funds.
Second, the Bill empowers MND to make rules for Town Councils to prepare and maintain long-term financial plans:
Clause 23 will instil greater financial discipline among Town Councils to review their financial positions regularly and to make timely adjustments to their financial plans in response to changes in the operating environment.
Third, the Bill introduces safeguards that avoid service disruptions, if a Town Council is on the brink of financial insolvency:
Clause 23 allows MND to make rules under the Town Council Financial Rules that prescribe Town Councils’ course of action in such scenarios. This could include the appointment of advisors to advise the Town Council on the proper management of its affairs.
(D) Enhancing MND’s Regulatory Oversight
Madam, I will now move on to MND’s powers as .
The Need to Enhance MND’s Regulatory Powers
Under the current Town Councils Act, MND’s regulatory levers to secure compliance from Town Councils with the law are limited.
While MND is responsible for administering the Act, it lacks powers to require Town Councils to submit any information beyond their annual financial statements.
In addition, MND lacks the regulatory levers to intervene where there is a detected non-compliance with the Act. There are only three narrow areas, where non-compliance with the Act is now an offence:
- One, the misuse of Town Council funds;
- Two, the contravention of Lift Upgrading Programme Rules; and
- Three, the failure to provide information to the auditor without reasonable excuse.
This is neither desirable nor tenable.
As , MND must also have the powers to conduct regular health checks for Town Councils, look into suspected irregularities and where necessary, take prompt and effective actions to safeguard residents’ interest.
Timely and Calibrated Action
Clause 24 of the Bill thus introduces a new
Part VI A, that allows MND to take the necessary investigative and enforcement actions to address potential regulatory breaches or systemic weaknesses in the Town Council, in a timely and calibrated manner.
First, in addition to the annual financial reporting, MND may periodically conduct compliance reviews to check for regulatory compliance.
These are basically health checks, in the form of risk-based audits on different aspects of Town Councils’ operations. The objective is to assess if there are specific areas of non-compliance, process gaps or areas for improvement.
MND will appoint inspectors, who may be public officers or professionals with the relevant qualifications and experience, to conduct these reviews.
During these reviews, Town Councillors and staff will have to answer queries from the inspectors and produce documents upon request.
And at the end of the review, the inspectors’ findings and recommendations for improvement will be presented to MND and the Town Council.
Second, if there are reasonable grounds to suspect a material irregularity in a Town Council’s affairs, MND may direct an investigation to be undertaken, to establish if there was a contravention.
Town Councillors and Town Council staff will be expected to extend their full cooperation to the inspectors during the investigation.
Third, where the compliance reviews or investigations throw up deficiencies in the running of a Town Council or irregularities in its financial affairs, MND may follow-up by issuing a rectification order.
This rectification order will specify remedial actions for the Town Council to address the irregularity, and a time-frame to do so.
At the end of the specified period, the Town Council is to report on the action it had taken.
Finally, as a last resort, Minister may put the Town Council under Official Management, if there is to act as the health or safety of the residents is under threat.
To be very clear, this provision of last resort is not new and is
already present in the current Town Councils Act. The Bill merely repeals the provision under Section and reintroduces it in a new
Section 43G.
The various steps that I have just outlined enable MND to take timely action and calibrate its enforcement approach according to the action or inaction of the Town Council.
In implementation, MND will first seek to engage the Town Councils to understand the situation and determine the severity of any contravention.
Town Councils will continue to be responsible for correcting any lapses or management deficiencies that are uncovered in the course of the compliance reviews and investigations. As I said earlier, findings by the inspectors will be shared with both MND and the Town Council.
While the Bill has introduced stronger enforcement powers to investigate and require Town Councils to take specific remedial actions, they will generally be exercised when a Town Council is uncooperative or recalcitrant, refusing to correct irregularities despite due and fair notice.
New Penalty Provisions
In addition to the three penalty provisions in the Town Councils Act, the Bill will introduce
new penalty provisions to hold Town Councils accountable in three key areas.
One, annual audit and disclosure of information. The Bill will make it an offence when Town Councils fail to provide regular submissions relating to audit and or fail to cooperate with requests for information related to governance.
Two, responsible financial management. Town Councils can be taken to task for flouting financial rules or specific instructions to rectify their contraventions;
Three, abiding by public laws and cooperating with public authorities. Town Councils can be taken to task for making unlawful or putting public health and safety at risk.
Where applicable, we have benchmarked the penalties to those for similar offences under the Charities Act.
We all recognise and accept that Town Councils and their key decision makers have to act honestly and responsibly.
This is reflected in
Section 33(6B) of the current Town Councils Act where key decision-makers in the Town Council, namely, the Chairman and Secretary, are held equally liable for the offence committed by the Town if the offence was committed with their consent or connivance.
The Bill extends this existing treatment and penalties to the new offence provisions, so as to hold culpable parties accountable.
This sets the tone for the leadership of Town and underscores the point that there would be stern consequences for key decision makers who poor governance or fail in their fiduciary duties.
To streamline the enforcement process,
Clause 26 will also empower MND to offer composition for some of the offences.
This will enable MND to take mitigating or aggravating factors into consideration when deciding whether to compound an offence or proceed to recommend prosecution to the public prosecutor.
(E) Other Amendments
Besides what I’ve covered above, the Act includes amendments to clarify existing definitions and processes. It also covers Town Council handover processes, which have been a subject of review, and a handover guide in 2013.
CONCLUSION
Mdm Speaker, the Town Councils (Amendment) Bill balances two objectives - to preserve the autonomy and latitude of Town while protecting residents’ interests and public monies.
These amendments have adhered to the original spirit and intent of allowing Town Councils to operate while establishing the necessary standards of governance, public accountability and transparency that residents and the general public expect of our Town Councils. Standards that this Parliament voted, unanimously for in February 2015, to strengthen through legislation.
With a stronger regulatory framework, MND will play a more effective role . We hope that these amendments can give residents greater assurance that their housing estates are properly managed and S&CC monies are used for their benefit.
Mdm Speaker, I beg to move.