The Aljunied-Hougang Town Council (AHTC)'s corporate governance has shown an improvement -- from "red" to "amber" -- despite having its most recent financial statements qualified by external auditors for the seventh consecutive year, as shown in the latest report issued by the Ministry of National Development (MND) on town council management for FY 2017 on Friday (14 Dec).
AHTC's latest scoring in corporate governance marked the first time the town council had received an "amber" score since the Workers' Party (WP)'s takeover of the Aljunied Group Representative Constituency (GRC) seven years ago in 2011. Previously, the town council had either obtained a "red" score or a pending one.
AHTC was one of the four town councils that had scored an "amber" rating in corporate governance in FY2017 besides Bishan-Toa Payoh, Tampines, and Tanjong Pagar.
All town councils on the list received a "green" rating in the areas of estate cleanliness, lift performance, and S&CC arrears management.
However, AHTC scored an "amber rating" in estate maintenance, as did East Coast-Fengshan, Jalan Besar, Jurong-Clementi, and Tampines.
AHTC was the only town council that had qualified financial statements for FY 2017: MND
According to MND, an "internal control weakness" in which "the town council failed to record expenses incurred in a timely manner" was the reason behind having an external auditor to qualify AHTC's FY 2017 financial statements.
AHTC responded that "while this is factually correct, the impression given is that AHTC has stood still for 7 years. From 13 observations flagged in 2012-13, AHTC has received just one observation this financial year."
"We believe MND’s specific reference to 7 consecutive years is deliberately calculated to lower the esteem of AHTC in the public eye," charged the town council.
It added that MND's statement on AHTC's qualified financial statements by an external auditor was "selective and incomplete".
A qualified opinion, according to Investopedia, is "a statement issued after an audit is completed by a professional auditor, suggesting that the information provided is limited in scope and/or the company being edited has not maintained Generally Accepted Accounting Principles (GAAP)".
The definition is extended to state that "auditors who deem audits as qualified opinions are advising whomever is reading the document that the information within the audit is not complete, or the accounting methods used by the company do not follow the GAAP."
AHTC responded to MND's report on the same day it was released, stating that "by MND’s own criteria, AHTC’s performance over the recent years in the areas of S&CC Arrears Management and Corporate Governance has progressively improved".
"In describing AHTC’s amber rating for Corporate Governance, MND’s press release states a “(f)ailure to maintain updated accounts and records of expenses…incurred in a timely manner. This was also the reason why the auditor had qualified AHTC’s financial statements.”
"What MND omits to say on this observation," added the town council, "but was included by AHTC’s external auditor, is that the expenses in question “are found to have been taken up into expenses and the related payables during the financial year” and that “there are no material misstatements found in the expenses and related payable transactions during the financial year.”
AHTC also argued that there might have been implicit bias in MND's summary, stating that "MND chose an even-handed and balanced tone" in "describing Tampines Town Council’s amber rating for Corporate Governance".
Quoting MND's press release, AHTC wrote:
“Tampines – Incorrect amount transferred from the Operating Fund to the Sinking Fund and Lift Replacement Fund. The TC had identified the computational error and rectified it, but it is still considered as a case of non-compliance as the correct amount was not transferred within one month after the end of the quarter.” (bold emphasis ours)
Lapses in corporate governance detected in three PAP-run town councils in FY2017
The MND report also revealed lapses in corporate governance that had placed the following three People's Action Party (PAP) town councils in the "amber" zone in FY2017:
- Bishan-Toa Payoh: Accepted quotations were not circulated to the TC for information as required in the Town Council Financial Rules;
- Tampines: Incorrect amount transferred from the Operating Fund to the Sinking Fund and Lift Replacement Fund. "The TC had identified the computational error and rectified it, but it is still considered a case of non-compliance as the correct amount was not transferred within one month after the end of the quarter," said MND.
- Tanjong Pagar: Approval for the transfer of budget from other areas to “Cleaning and Utilities Expenses” was obtained only after the expenditure was incurred.