Town council investments: Annual reports do not answer questions

Guest contributor

When Minister for National Development, Mr Mah Bow Tan, publicly said that “each town council has the duty to explain to its residents how it invests its funds, what is its philosophy, what are the risks it takes’, (Sunday Times, Nov 23) he unfortunately did not say the level of details and transparency that the town councils should go adopt.

The replies received so far by our readers who queried their town councils direct residents to the town councils’ annual reports and financial statements. They seem to assert that the annual reports and financial statements can answer residents’ questions.

We did a review of several town councils’ financial statements and were able to obtain some information. For example, the HOLLAND-BUKIT PANJANG TOWN COUNCIL 2007 Financial Statements has a RISK MANAGEMENT POLICIES FOR FINANCIAL INSTRUMENTS section under SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES in NOTES TO FINANCIAL STATEMENTS. (See here)

The NOTES TO FINANCIAL STATEMENTS also gave a breakdown of investment at fair value:

Bonds – $32,954,666

Unit trusts – $6,110,600

Quoted structured deposits – $15,423,400

Unquoted structured deposits – $5,000,000

Residents reading the report can get a general idea of “how it invests its funds”, and “what is its philosophy”. However, this level of explanation does not account for the actual investment operations. There is no information on how and why the town council decided on any major investment? There is no listing of which financial products the town council has invested in and how much was invested? It is not possible to judge if the investment decisions complied with the stated investment philosophy or assess the actual risk of each and every individual investment.

The town council invested $6.1M in unit trusts – what are these unit trusts? Can the town council list the top 10 unit trusts? Can the town council list the top 10 quoted structured deposits?

What is the $5M unquoted structured deposits?

These are the questions residents need answers to, to fully understand the town council’s investment philosophy and assess the actual financial risks the town council is taking, which Mr Mah mentioned.

Another example we want to highlight is the Jurong Town Council Report and Financial Statements 2008.

In the news report, “Town councils’ sinking funds not substantially affected by financial turmoil” (CNA 28 October 2008),

It was reported that, “For Jurong Town Council, it has not invested in any Lehman—linked products, but explains that it only spends about 18 per cent or S$15 million of its S$84 million sinking funds in slightly riskier products.”

While that statement is reassuring, residents may be curious to find out what the “structured notes” are, which the town council had invested $5m in (page 29 of the report). What is the name of this structured notes? How is this structured notes different from the Lehman-linked products in terms of risk?

Until and unless town councils disclose fully the answers to such questions as the ones above, it is of no use referring residents to the annual reports. For what you get are general statements which gives you only general answers.

They do not tell you “how it invests its funds, what is its philosophy, what are the risks it takes”, something which Minister Mah himself said town councils should do.

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