Auditor-General: Lapses in National Gallery development of wavier contractual provisions of S$13 million without scrutiny or monitoring

Based on the Auditor-General’s Office (AGO) latest report, it found multiple weaknesses in the financial governance of the National Gallery development project which “did not give assurance that public funds has been properly managed”.
The report was made public today (16 July), following the AGO’s audit of government accounts for the 2018/2019 financial year.
The National Gallery development project is a project completed in 2015 within the approved budget of S$532 million under the Ministry of Culture, Community and Youth (MCCY), and is managed by the National Gallery Singapore (NGS) through a Funding Agreement (FA).
“AGO’s test checks revealed weaknesses such as waivers of contractual provisions involving $13 million without due scrutiny by MCCY, and inadequate monitoring (including the lack of timely audits) to ensure that the final sum to be paid for the main construction contract was properly supported,” said the report.
AGO pointed out that the FA didn’t detail out who is supposed to approve waivers of contractual provisions. If that is not all, “MCCY did not explicitly give authority to NGS to decide on such waivers”.
Despite not gaining approval, AGO stated that NGS went on without due scrutiny by MCCY.
In addition, AGO noted that the Ministry only questioned NGS regarding the waivers in September 2018, one year after the construction contract has been issued and the final payment has been made.
Apart from that, there was no adequate monitoring mechanism placed by the Ministry to ensure “that the waivers with substantial financial implications were highlighted for its attention on a timely basis”.
Besides that, the report also mentioned that there was “a significant gap” between the last monthly status report and the last audit of the project expenditure. In fact, the Ministry only scheduled the final audit in the second half of 2018, which is close to a year after the final account was given and the payments were made. It also noted that it was not aware of the waivers granted until a year after all the accounts were issued and payments settled.
“The waivers of contractual provisions had significant financial implications amounting to $13 million. There is hence a need for MCCY to strengthen its oversight to ensure financial prudence in the use of public funds managed by NGS on its behalf,” the report stated.
As such, AGO felt that MCCY should have had a “proper governance framework and key controls” of the National Gallery development project, given that it is the owner of NGS.
“These include ensuring that the FA sets out clear roles and responsibilities of NGS and its Board, and that decisions involving large sums of public funds are made only after obtaining MCCY’s approval,” it added.
In response, the Ministry said that despite the challenges to re-develop two gazetted national monuments and unique requirements of an art infrastructure, NGS still managed to complete the project within the time frame and approved budget. However, both MCCY and NGS agree that the processes can be improved.

Insufficient oversight in management of contract variations

There were also lapses found in the main construction contract, exhibition fit-out contracts and integrated consultancy services contract in the National Gallery Development project, AGO said. The total value of the contracts amounted to S$458.98 million.
Some of the lapses include not obtained approvals before contract variations were carried out, approval obtained from incorrect approving authority and failure to deduct costs for incomplete works, among others.
Out of the 403 contract variations checked, AGO found that there were lapses in the approval of 142 variations amounting to S$12.4 million.
“AGO also found two instances under the main construction contract where works provided for in the contract were not carried out. Contract variations should have been issued to deduct the costs from the contract sum. However, this was not done, resulting in an estimated overpayment of $11,500,” the report revealed.
It added that in total, the estimated overpayment for works not done was S$265,800.
As such, AGO explained that in order for financial prudence and discipline to be maintained, it is crucial for approvals to be obtained from the right authorities and costs deduction for incomplete works must be done to gain full value for the public funds spent

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