Non-Constituency Member of Parliament, Mrs Lina Chiam, delivered an adjournment motion on the Auditor-General’s Report (“AGO”) in Parliament today.
The AGO report was released on 15 July and highlighted numerous financial and accounting irregularities and lapses in government ministries and statutory boards, most notably with regard to the People’s Association and Nparks.
Titled “Proper Accountability by Public Sector Entities for Public Resources”, Mrs Chiam’s parliamentary motion said that the AGO report calls into question the soundness of current financial mechanisms and practices that have been put in placed to prevent financial irregularities by respective ministries and statutory boards. She also questioned whether the interests of the public have been compromised as a result of these financial irregularities.
On the litany of financial lapses committed by the People Association (“PA”), several issues were raised.
First, that it has been more than a decade since PA’s Grassroots Organisations (“GROs”) have been audited. This was because the PA has not produced the financial statements of the GROs for audit, and has only done so in the financial year 2013/2014.
She calls for these financial statements to be disclosed, and for them to be audited.
Second, the pervasiveness of such poor financial practices across the 1,800 GROs since the AGO had only test-checked a mere 6.5% of the GROs.
Third, that an independent review committee should be established instead of the Grassroots Finance Review Committee, chaired by three grassroots leaders, that was set up in the aftermath of the AGO report.
Regarding the financial irregularities of other statutory boards, she emphasized that the lapses highlighted by the AGO are not one-off incidences, but occur with an alarming regularity, especially in relation to lapses in procurement and tender related contracts. She makes two recommendations: the need for regular training of officers involved and to consider centralizing procurement activities in one agency.
We reproduce Mrs Chiam’s speech in full:
Thank you for the opportunity to speak on this adjournment motion. I will take this opportunity to speak on the AGO’s report that was released in July, its attendant issues and implications, as well as to provide some alternatives as to how this situation can be improved.
Madam Speaker, given the gravity of the financial lapses of statutory boards flagged by the Auditor-General Officer’s report (AGO), the complete silence of the respective ministries and ministers, beyond mere platitudes is of serious concern for the public.
The most fundamental issue at hand is the lack of accountability by respective ministries in exercising supervision over how taxpayer moneys have been used and misused. This calls into question the competency of the respective ministry, and the soundness of current financial mechanism and practices to prevent such lapses. Equally, questions arise as to whether the interests of the public have been compromised as a result of such financial lapses that involved up to millions of dollars. A deeper scrutiny of the related issues is therefore necessary – and crucially lacking.
I begin first, with the lapses of the People’s Association (PA). The interwoven role of the PA with the daily lives of citizens might explain why much attention has been focused on its lapses. For one, the role of the GROs’ has been so closely integrated into the daily lives of citizens. Many citizens for example, have attended events and lessons organized by the GROs at the community centers. It also signifies the importance which citizens regard the PA, and in turn, the litany of financial lapses by the PA deserves close attention.
Madam Speaker, it is noteworthy that this is the first time that the AGO has in fact conducted an audit on the People’s Association and the grassroots organizations under its umbrella. What is perhaps even more appalling is that this is only the second time, since the financial year of 2000/2001, that the GROs have had their financial statements audited.
Failure to provide GRO’s financial statements
Although the PA has its own independent auditor engaged for annual audits, the PA has, however failed to provide the financial statements of related GROs for audit for more than 10 years. The omissions have led the PA’s own auditors to issue adverse opinions in the financial years of 2006-2013. The PA has previously responded to this adverse opinion on the basis that (and I quote):
“the auditors had given an adverse opinion on the Financial Statements of the PA for one reason- not including the accounts of its grassroots organizations in the PA accounts.” (end of quote)
However, this reply understates the significance of the failure to provide the necessary financial statements. As the PA’s auditors noted in issuing the adverse opinions, the failure to provide GRO’s financial statements meant that the PA’s financial statements reflected in the annual audit do not accurately represent the financial state of affairs of the Association between the financial year of 2006 -2013. It was only in financial year 2013/2014 that the PA has provided the financial statements of the GROs to their own auditors.
The PA is expected be responsible and accountable to its citizens as to how the taxpayer funds have been used by GROs. Citizens deserve to know the financial health of the GROs, not just moving forward, but also of the past 10 years. In any case, the failure to provide the GROs’ financial statements for audit for more than 10 years is completely unacceptable. It is shocking that the PA has continued to do so for such a long time, and has failed to provide oversight of GRO’s compliance with its Financial Rules, as noted by the AGO. The AGO itself highlighted that the (and I quote) “common lapses found in most of the GROs test-checked indicate that the GROs may not be familiar with PA’s financial rules, even up till today” (end quote).
As a result, the lack of auditing of GRO funds before 2014 casts doubts on whether the funds have been used in accordance with the relevant financial rules during these years.
In order, to dispel any such doubts, the ministry overseeing the PA needs to disclose the financial statements and records of the GROs and have them audited.
While the PA has started to provide the financial statements for the financial year 2014 – this is clearly belated and was what an accountable and responsible body should have done 10 years ago, and has the obligation to continue to do so.
Implications on the lapses of the PA highlighted by the AGO
Turning back to the AGO report, the AGO had noted many financial irregularities and lapses committed by the PA. Several notable irregularities include:
- First, lapses in management of tenancy contracts and procurement:
- For example, 10 out of the 35 CCMCs test-checked for instance did not obtain relevant approvals for the direct award of 13 tenancy contracts (totaling 3.67million) without competition
- According to the AGO, a direct award of tenancy contracts without any competition can only be waived under exceptional circumstances.
- Second, common lapses in procurement:
Out of the 9 GROs that were test checked, 5 GROs had awarded contracts without obtaining approvals from the relevant authorities and the approval was backdated after the contract was awarded. 4 of these GROS did not even seek approval when making 10 direct purchasers from suppliers
- The AGO has also noted that the PA did not provide any compelling reasons to justify direct purchases.
- This led the AGO to question whether competitive procurement has been compromised in favor of expedient decision-making.
- Third, lapses in engagement of training operators – including the failure to call for a competitive bids involving contracts worth over millions of dollar.
- Fourth, failures to manage conflict of interest involved in related party transactions.
The less than prudent manner in which funds were handled by the GROs has severe implications, the most important being whether such lapses have compromised the interests of residents.
Madam Speaker, many of the tenancy, procurement and training operators contracts have been awarded without competitive tenders. But without having to compete with other suppliers, how can residents be sure that the awards of such contract are indeed the ones who can provide the best quality of services and products for the residents?
There is of course a need to strike a balance between ensuring expedient decision-making and competitive tenders and procurement. However, it appears that too much balance is struck in the face of expedient decision-making. Even in the face of time pressures, procedural compliance still ought to be observed as much as possible. The purpose of procedures is to safeguard and protect the interest of relevant stakeholders – in this case, the residents. Further, procedure compliance provides a measure of transparency and accountability.
Another point of concern is how pervasive such poor financial accounting and practices are across the 1800 grassroots organizations. The AGO has only test-checked a small sample size of GROs, a mere 6.5 per cent. Yet, the audit has already turned up significant lapses. There is reason to believe that financial lapses of similar nature may be found in the other unaudited GROs. The worry of course, is that the lapses flagged out by the AGO are only the tip of the iceberg.
Finally, it is clear that internal audit of GROs is severely lacking. It is not the case that the PA comes up to be audited annually by the AGO. In fact, this is the first time that the PA has actually been audited by the AGO.
While the PA has set up a Grassroots Finance Review Committee , the committee is however chaired by three grassroots leaders. This calls into question the independence of the review committee and an independent body should be preferred instead. Also, an audit of the other GROs that have yet been test-checked by the AGO should be conducted.
Madam speaker, I now turn my focus to the lapses of other statutory boards. There are two main points to be noted. First, that the irregularities found of the PA is also a common occurrence across the various statutory boards test checked by the AGO. Second, such lapses are not one-off incidents, but occur with an alarming regularity year after year.
Common lapses observed by the AGO
Time and time again, the AGO has noted recurring financial lapses over the years. For instance, between the financial years 2010-2014, recurring lapses have been observed by the AGO, which includes:
- First, lapses in procurement and tender contracts as a result of a failure to adhere to the government procurement rules and principles of transparency and open and fair competition. The relevant statutory boards who were supposed to ensure a competitive bid for tender, had failed to do so and had waived competition on extremely weak grounds.
- For example, the AGO found that National Parks had awarded three consultancy contracts worth a total of $20.77 million and had waived competition without compelling reasons. Although NParks had cited tight timeline as the main reason for waiving the competition, the AGO said it found “no evidence to show that the tight timeline was caused by unforeseen and urgent events.”
- Second, failures to seek the requisite approval from an approving authority, or only doing so after the contractual commitment had been made. In some instance, approving authorities were not provided with complete or correct information on matters crucial for decision making
- Third, related party transactions were carried out.
- Fourth, poor management in the administration of grants.
Many of the financial lapses have been noted by the AGO to be a result of administrative expediency taking priority over financial prudence. Madam speaker, it is very worrying that these financial lapses highlighted are the same lapses that are still occurring today.
This is a government that prides itself as one that is accountable and able to provide good governance. The reoccurrence of similar financial regulations points to an inherent systemic weakness, and a failure to put into place sufficiently rigorous mechanism to rectify such irregularities. The government has a duty to do so, especially when it involves significant sums of public funds. Clearly, we expect that our funds be put to good use, in ways that enhance, and not compromise the welfare of the public.
Putting in place regulatory mechanism is not enough. Competent and regular training of officers involved in this process is necessary. From the AGO report, it appears that there is a serious issue that officers involved are not sufficiently familiar with the relevant financial procedures and compliances process. The lapses in management of tenancy contract, procurement and in engagement of external operators by the PA is one such example. Moving forward, conducting regular training is something that the ministry ought to be looking into.
Finally, would the government consider a centralizing procurement activities in one agency to mitigate the financial risk bore by the government in view of the fact that poor procurement practices seems to occur persistently within statutory boards.
Madam speaker, when statutory boards have poor financial practices, the ones who bear the brunt are ultimately the citizens. While it is important to ensure that such lapses will be significantly reduced in subsequent financial years, it is also important for the relevant ministry to account for such lapses that have occurred previously.