AGO report uncovers inadequate financial controls over Government operations

The Auditor-General's report for Financial Year 2015/2016 which was signed on 14 July by the President, has just been released on Tuesday (July 26).

In a media release, the Auditor-General's Office (AGO) said that, as a whole for FY2015/2016, it audited the following:

• The Government Financial Statements (incorporating the accounts of all 16 Government ministries and 8 organs of state)
• 4 Government funds
• 11 statutory boards
• 5 Government-owned companies
• 3 other accounts

In addition to the audit of the Government Financial Statements, AGO also carried out selective financial statements audits of three statutory boards, a Government fund, five Government-owned companies and three other accounts.

The audit observations in this year's report relate to six ministries, including the Ministry of Education and Ministry of Defence, and six statutory boards such as the Housing and Development Board (HDB) and Nanyang Polytechnic.

In this year’s audits, AGO uncovered a number of instances of inadequate financial controls over Government operations including those outsourced to external operators. There were cases of inadequate controls over collection of fees resulting in loss of revenue to the Government. There were also instances where the controls were inadequate for ensuring that correct payments were made for services rendered.

AGO noted that governance over the management of public funds was weak in certain areas audited. In one public sector entity, the principles of good governance and financial controls were disregarded in several areas, resulting in a lack of financial accountability.

Another area of concern is the failure to exercise adequate oversight of external entities which were lax in their administration of schemes and loans. For proper accountability, it is important that controls and mechanisms are in place to ensure that public funds are used to achieve the intended objectives.

AGO also observed lapses in the management of contracts resulting in late payment to contractors. In addition, there was laxity in management of contract variations in an entity resulting in a significant number of instances where approvals were sought only after the variation works had already commenced or were completed.

(1) Inadequate Financial Controls

AGO found instances of inadequacy in financial controls over revenue collection, payment, and handling of cash and valuable assets in public sector entities such as the Housing and Development Board (HDB), the Land Transport Authority of Singapore (LTA), the Ministry of Foreign Affairs (MFA) and the Ministry of Law (MinLaw).

AGO found that HDB did not have adequate oversight of the operations of its car parks at industrial estates and residential estates which were outsourced to commercial operators. There were many instances where vehicles were not charged parking fees and motorists had evaded payment by manipulating the car park system. HDB could have detected these instances if it had examined the data from its car park system and the monthly reports from the operators of the car parks. As a result, there was loss of revenue and no action was taken against those who took deliberate actions to avoid paying the charges.

AGO also observed that LTA’s controls over the collection of toll at the Woodlands and Tuas Checkpoints were weak. As a result, there could be potential loss of revenue to the Government.

AGO estimated that the under-collection of toll could be about $13.93 million (or 21.9 per cent of the total toll collected of $63.54 million) in the financial year 2014/15.

AGO’s audit revealed irregularities in MFA’s management of subscription of telecommunication services. AGO found that MFA did not carry out proper verification of invoices to ensure that the rates and amounts billed and paid were correct. MFA also did not conduct proper monitoring and review of the need for mobile lines, and continued to subscribe to lines that were no longer needed. These lapses had resulted in overpayments totalling $109,868, and wastage amounting to $80,744 in the areas test-checked by AGO.

AGO’s test checks also revealed that the Public Trustee’s Office (PTO) under MinLaw did not have adequate controls over the handling of deceased persons’ assets received from nursing homes. The handling, recording and safekeeping of assets received were carried out by only one officer; there were no independent checks. AGO also noted discrepancies in the recording of assets received from nursing homes. Thus, there was no assurance that assets held in trust by PTO were correctly accounted for. This increased the risk of misappropriation of valuable assets.

(2) Weak Governance over Management of Public Funds

AGO found that the Nanyang Polytechnic (NYP) did not have a proper governance framework to manage transactions with its subsidiary, including conflict of interest situations. AGO noted that some members of NYP’s Board of Governors (BOG) with vested interests in a subsidiary of NYP were involved in the evaluation and decision-making process on matters relating to the subsidiary, including the approval of a funding model that was more generous than that provided for in Government’s instructions. In addition, NYP did not charge market rates for premises used by the subsidiary and had given funding in excess of that approved by the BOG. This had resulted in hidden subsidies and excess funding totalling $8.38 million given to the subsidiary since its inception in 2007 till March 2015. NYP’s practices reflect a disregard for financial controls and proper governance.

(3) Lack of Oversight of Administration of Schemes and Programmes

AGO carried out audits on tuition fee loans, study loans and scholarships funded by the Ministry of Education (MOE) and administered by the Nanyang Technological University (NTU) and the National University of Singapore (NUS). AGO observed that there were inadequate controls to ensure that tuition fee loans and study loans due (amounting to $228.04 million as at 30 June 2015) were promptly recovered. The universities had relied on the outsourced agents to monitor and recover the loans. AGO found a number of instances where loan recovery actions as well as follow-up actions on default cases were not taken on a timely basis. MOE also did not follow up promptly on long outstanding loans surfaced by the outsourced agents for its review. Such control weaknesses would adversely affect the recoverability of the loans and increase the risk of loss of public funds.

For a scholarship scheme ($36.52 million disbursed in the financial year 2014/15), MOE did not maintain adequate oversight of NTU and NUS on the monitoring and enforcement of scholarship bonds. AGO found that the universities did not take prompt action on scholars who were not serving the required bonds for 16 of the 30 cases test-checked. As a result, there was no assurance that the scholarship grants were used optimally.

Similar observations on inadequate oversight of schemes outsourced to external administrators had been raised over the past few years. However, AGO notes that such lapses are still occurring; there is a need for public sector entities to pay greater attention to this area.

(4) Lapses in Management of Contracts

AGO found that there was laxity in the management of development projects by HDB and the National Arts Council (NAC). In the audit of HDB, AGO’s test checks on the accounts of 36 contracts relating to construction and upgrading of HDB flats ( final payments totalling $37.62 million) revealed delays of up to 3.3 years in making  final payments to contractors. Delays in payment to contractors contravened contractual requirements and might be seen as an unfair business practice as it could affect the cash flows of the contractors.

For the audit of NAC, AGO’s test checks of contracts for the Victoria Theatre and Victoria Concert Hall Redevelopment project revealed that 47 out of 164 variation works were carried out before approvals were given. The delays in obtaining approval were up to 3.5 years. The large number of instances indicated a breakdown in the controls put in place to ensure that variations were properly justified and approved before works commenced. AGO also found that NAC had paid a consultancy fee of $410,000 for the construction of a bin centre costing $470,000. There was inadequate assessment on the reasonableness of the exceptionally high consultancy fee, at 87.2 per cent of the cost of construction.