Additional Hidden Costs in Award of Contracts to Overseas Tenderer for Mid-Autumn Festival 2016 and Chinese New Year 2017

2 Mr Png Eng Huat asked the Minister for Culture, Community and Youth in respect of the Auditor-General's Report for FY2017/18 (a) how much additional costs were hidden in the award of contracts to the overseas tenderer for the Mid-Autumn Festival 2016 and Chinese New Year 2017; (b) whether there were such similar hidden costs paid to this overseas tenderer from 2014 to 2016 and how much was it in total; (c) what independent investigations had been carried out to address the tell-tale signs that the reimbursement claims made by the People's Association (PA) officer for overseas purchases for use in Chingay Parade 2017 might not be authentic; and (d) whether any of the statutory auditors of PA in previous audits flagged out such lapses since 2013.

The Minister for Trade and Industry (Mr Chan Chun Sing) (for the Minister for Culture, Community and Youth): Mr Deputy Speaker, Sir, on Mr Png’s questions, let me first clarify that the AGO’s recent report made no mention of “additional costs that were hidden in the award of contracts to the overseas tenderer”. Instead, AGO pointed out that the successful tenderer had in its tender proposal required the organiser to bear additional obligations, which included transportation charges and provision of a site for lantern-assembly. The organiser was well aware of these additional expenses as they had been bearing the cost every year, which averaged about $34,000 for each event from 2014 to 2016. The AGO had flagged this as an administrative lapse because the organiser did not take into consideration these costs in its tender evaluation for price comparison. The organiser has acknowledged the lapse and put in place measures to avoid its recurrence.

Pertaining to the reimbursement claims made by a People's Association (PA) staff member for overseas purchases for Chingay, an independent investigation panel led by a senior officer in MCCY was also set up in June 2018 to check on Chingay 2017 procurement, as well as to review past overseas Chingay purchases and payments. The panel has completed its investigations. While there was no conclusive evidence that there was wrongdoing, there were concerns over the authenticity of some transactions. PA has referred the matter to the Police and will fully cooperate with the Police in its investigations. We will decide on further steps after the Police complete their investigations.

Mr Png asked if any of these lapses were flagged out in the past by statutory auditors. The AGO observations for the Mid-Autumn Festival, Chinese New Year and Chingay events were not observed in past external audits conducted. Although AGO did not previously flag out similar observations on Festivals and Chingay procurement, PA’s own internal audit had earlier identified that Chingay’s practice of overseas procurement did not fully comply with approved procedures. PA immediately stopped these practices for Chingay in early 2017, even before AGO’s recent audit.

Mr Deputy Speaker, PA acknowledges and takes a serious view of the observations by the AGO. We will continue to educate our staff and volunteers to improve the procurement practices. We will also review the rules for local and overseas purchases with a view of simplifying them for ease of application and compliance. Procedures adopted by PA must be simple, robust but not overly onerous on the staff and large number of volunteers to adhere to. We will continue to balance the need for agility and accountability.

Mr Png Eng Huat (Hougang): Thank you, Deputy Speaker, Sir. I thank the Minister for the answer. I just got a couple of supplementary questions. Who should be ultimately held accountable for such lapses – the GRO volunteers or the management of PA? Because the PA is not run by volunteers; it is headed by PAP Ministers and Members of Parliament in this Chamber and it is allocated a huge budget, closing in on $1 billion with professionally paid staff. So, it is not an amateur outfit to begin with. So, I would like to ask the Minister where the buck stops for accountability at PA.

The second question is does the Minister agree that the work of the current auditor for PA, which has been giving PA a clean report since FY2013, needs to be audited as it could not pick up serious lapses repeatedly, some with telltale signs of possible fraud as reported in the AGO report. And since there is no assurance that the audit work at PA was done to the highest standard of transparency and corporate governance, would the Minister consider ordering an independent investigation or a full AGO audit, or even a forensic audit to ensure public money is well-spent?

The last question is: does the Minister agree that it is important to hold PA to greater accountability going forward, since the weakness at PA has not been addressed over time and the lapses have become more brazen? Which Government agency would allow its staff to conduct parallel quotations and also to pay almost $150,000 in cash for overseas purchases and seek reimbursement using cash receipts? Just these three questions, Sir.

Mr Chan Chun Sing: Mr Deputy Speaker, Sir, let me take the three issues that Mr Png raised, one at a time.

First, who is responsible. There is a current process of investigation and whoever is responsible will be taken to task. And that has been the way the Government operates before, now and in the future. Nobody is hiding anything. That has been our system. It has not changed and it will not change. We do a thorough investigation on every lapse, small or big, and we take responsibility for every mistake made and we put them right.

Second, you alleged that there are serious lapses and fraud. May I know where did you get to use this word called "serious lapses and fraud". If you look at the AGO report, the AGO has done their job professionally; unless you are suggesting that the AGO has not done its job professionally. I do not think that AGO used those words; you can check your record. I think it is not appropriate for us to put words into the AGO's mouth unless you are making a separate serious allegation, which we will take up seriously. I have no doubt on the integrity of my public officers and their professionalism. I accept that sometimes they make mistakes and when they do, we will put it right. But please do not use words that do not correspond to the reality or words that the AGO have not used.

The AGO and the auditors have never, never made any comment that the PA's accounts are qualified. This is quite different from other cases which Mr Png may be familiar with. There is a material difference between whether an audit report is qualified and not qualified. Audit reports will always find in most, if not all, cases, some areas for improvements, and some areas where mistakes need to be rectified. We accept that. But there is a material difference whether a set of accounts is qualified or not qualified. And I think Mr Png knows the difference. Because it goes to the heart of whether the accounts can be accepted by the public or not.

Your third question on greater accountability. PA is a large organisation run by professional staff as well as even a larger group of volunteers. This is not an excuse for PA to make mistakes. We are fully aware of the nature of PA's work. We are also fully aware of the type of work that the PA needs to do. A large volunteer base, which is why we constantly simplify our rules to make sure that the rules are compliant with processes and yet easily adhered to. We continuously find a balance between the two: the need for accountability and agility.

So, I think it would not be right for us to insinuate that the public officers and, least of all, that the AGO has not done a proper work. If there is a suspicion that the AGO has not done a proper work, we will take the AGO to task. The AGO is independent in its report and it will stay so.

So, I want to remind Mr Png, first, there is a serious difference between what we called a report whereby the auditors have a disclaimer of opinion where they are not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. There is a material difference there.

When AGO audited AHPTC in 2015, AGO concluded that there was "no assurance that AHPTC's accounts are accurate and reliable, or that public funds are properly spent, accounted for, and managed". However, the Government's accounts are in order. AGO has consistently given the Government an unmodified audit opinion – unmodified audit opinion – on its financial statements. This means that the Government's financial statements containing the accounts of all Ministries, departments and Organs of State are reliable and public funds are properly accounted for. Similarly, Statutory Boards have received unmodified audit opinions from their respective auditors in their recent audit. Now, this is a material difference between a qualified set of accounts and a set of accounts that have no such qualification.

I want to highlight two other differences. In PA, some of the mistakes made were found by our own internal processes and we made it right even before AGO comes. We reviewed the processes, we tightened the processes, we cooperated fully with the investigators to put things right. And when there is wrongdoing, we own up to it and we put it right. I think the public can make their own assessment as to the difference between how we handle our audit very seriously and how others handle theirs.

Mr Png Eng Huat: Thank you, Deputy Speaker. The AGO report actually mentioned that there were serious weaknesses in control, and there were tell-tale signs that certain documents were not authentic. AGO will not use such words unless there is reasonable doubt. I think I spoke in this Parliament before that AGO did a special audit on AHPTC and I accepted all the findings. I have full respect for the AGO.

In terms of audit report, the PA has many years of qualified accounts. And then —

Mr Deputy Speaker: Mr Chan, are you raising a point of order?

Mr Chan Chun Sing: Clarification. Can I hear you say that again? Did you say PA has qualified accounts?

Mr Png Eng Huat: Yes.

Mr Chan Chun Sing: I do not think that is what the AGO said.

Mr Png Eng Huat: No, I am saying history, PA has many years of qualified accounts before 2007, if you look. I looked through all the reports. 2007 to 2012, it has adverse opinion. Adverse opinion is the worst opinion they can ever get for an audit report; six consecutive years. And I have asked why then there is no independent audit on PA. And then, when it finally cleared its accounts in 2013 – every year is, I think, true and fair – and when AGO audit it in 2014, 2017, they found all these serious lapses. So, what I am asking for is accountability. Accountability must mean something, it must mean for all. And it is not too much to ask for that.

Mr Chan Chun Sing: Mr Deputy Speaker, I thank Mr Png Eng Huat for clarifying that he is not casting doubt on the integrity of the AGO report. Can I have a confirmation that you are not questioning the integrity of our AGO?

Mr Png Eng Huat: I have full respect.

Mr Chan Chun Sing: Thank you very much. Thank you very much for accepting that you have full respect for the AGO's professional work. I have similar respect for my AGO's work. And if that is so, then we take the AGO report as what it is. And I would like to repeat this: there is a material difference to what it means by a set of qualified accounts and what it means not to have that qualification. I think we are very clear in our mind whether the PA accounts were qualified or not. You can check that. I suggest you invite Mr Chen Show Mao, who is sitting beside you, who is well versed in this, to clarify what is the difference between a set of qualified accounts and otherwise.

Dr Lily Neo (Jalan Besar): Thank you, Mr Deputy Speaker. I would like to declare that I am the grassroots adviser in charge of Chinatown festivals. May I ask the Minister whether it is correct to say that the tenders for the Chinatown festivals had been properly procured at every festival for the last 16 years, and they were all itemised tenders?

May I also ask the Minister whether it is correct to say that the Chinatown festivals had always been self-funded and self-sufficient and only depending on public money, as mentioned earlier, or People Association's funding had always been only about 1%-2% on average for the last 16 years? I would like to clear that, please.

Mr Chan Chun Sing: Mr Deputy Speaker, in response to Member Dr Lily Neo's comment, what the AGO found for that particular event was this: all the items were accounted for; they were itemised. The comments refer to specifically this: should the whole set of things be put under the tender or this part we put under tender and the cost, the other portion of the cost that have to be borne, because of the transportation and the storage, be combined together? What the auditors found and suggested for improvement is that not only the tender cost for the products but also the storage and the transportation be considered in full rather than separately.

The cost has been made clear, the organisers have been aware of both sets of costs but, perhaps, the inadequacy of the organiser was not to consider the two parts in entirety. That is the clarification I want to make. So, it is not that the costs have not been accounted for. It is not as if there are no bills and receipts to justify the payment. It is not that there is anything that has not been shown to the public or revealed to the auditors.

The question and the suggestion by the auditors is that, going forward, instead of considering the two in separate, the tender for the product separately from the storage and transportation costs, that the two should be conducted in its entirety. We will do that and we have done that to rectify it.

Mr Png Eng Huat: Thank you, Mr Deputy Speaker. Just one last question. I think just now the Minister said that because of the auditor giving us a qualified account for two years – I think the history is there, it had been debated here – because of that, the Government ordered AGO to audit our accounts, because our auditor qualified our accounts.

Then, I would like to ask the Minister, PA has many years of qualified accounts before 2007 and six years of consecutive adverse report, why then did the Government not order any audits on PA?

Mr Chan Chun Sing: Mr Deputy Speaker, may I suggest Mr Png ask an accountant to explain to you what it means to have qualified accounts and not qualified accounts. As a layman, let me try again, to explain in layman's terms.

In every audit report, we can expect to find mistakes made, no excuse. Mistakes made must be corrected and rectified. Full stop. Having made mistakes, does it mean that the set of accounts can be trusted, in layman's term? If the set of accounts can be trusted, because notwithstanding the mistakes made, that means there is no material impact, then we do not need to have a qualified opinion. But if the auditor comes out and say that, "I look at the set of accounts, yes, there are mistakes made, but on top of the mistakes made, I cannot be confident that this set of accounts is correct and can be trusted." Then, people will give a qualified opinion. That is a material difference.

And I am not sure that your statement is correct: that PA has a qualified set of accounts. PA has made mistakes, we accept, we acknowledge and we will rectify and put it right. But at no time was it ever suggested that the accounts cannot be trusted; that there is a material impact that the set of accounts cannot be trusted.

If you like, I would clarify the following things. I know that you have been trying to draw a comparison between AHTC's case and PA's, and AGO's findings for various Government agencies. As the AHTC's lawsuit is pending before the Courts, I will limit my comments to what is material.

Any lapses in Government agencies can undermine public confidence in the Government as an institution and affects the integrity of our Civil Service. And this is why it is necessary, in the public interest, to explain and distinguish the facts, circumstances and follow-up actions concerning the AHTC's lapse and those found by the AGO in the Government agencies. And I will limit myself to the facts. The issues surrounding AHTC's case are very different from the lapses found by AGO in Government agencies.

First, and I repeat, the accounts of AHPTC, or known as AHTC, have been found by its auditors to be unreliable from fiscal year 2012 to 2017. Its auditors, your auditors, repeatedly gave the Town Council a disclaimer of opinion as they were "not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion."

When AGO audited AHPETC in 2015, AGO concluded that there was "no assurance that AHPETC's accounts are accurate and reliable or their public funds are probably spent, accounted for and managed". However, the Government's accounts are in order. AGO has consistently given the Government an unmodified audit opinion on its financial statements. This means that the Government's financial statements containing the accounts of all Ministries, departments and Organs of States are reliable and public funds are probably accounted for. But that does not mean that there are no mistakes. Similarly, Statutory Boards have received unmodified audit opinions from their respective auditors in their recent audits.

Second, quoting KPMG's opinion in July 2016 report, the controlled failures in AHTC were "pervasive, cross-cutting across the key areas of governance, financial control, financial reporting, procurement and records management over the course of five years." AGO also 150 lapses in 2015 and KPMG uncovered a further 70 controlled failures in AHTC in 2016. The Government does not face similar issues. The Government has rules and procedures in place to ensure proper systems of checks and balances. AGO audits pointed out that the instances of lapses found in the Government agencies were failure to comply with these rules. These lapses were taken in the context of a much larger public service with more than 140,000 officers handling hundreds and thousands of transactions every year.

The difference is this: our rules are in place, when compliance is not in order, we take officers to task and we improve and tighten up the system.

Third, on the Government agencies' response to lapses found by AGO, their responses have been to take firm action against individuals responsible. And if I may add, even before AGO comes in, various of the agencies have their own internal audits, just like PA, to pick out mistakes made and to rectify them ahead of time. Where criminal offence is suspected, the cases are promptly surfaced to the Head of Department or organisation, and a report filed, with the relevant authority such as the Police or CPIB; and this is exactly what has happened.

To give an example, following the AGO's audit report, indicating possible wrongdoings in relation to the procurement in the National Library Board in 2014. We referred the case to the Police and a former officer has been charged for corruption. There are other past criminal cases reported in the media. We do not hide them, we do not sweep them under the carpet. We face them squarely and we take the actions necessary.

For administrative and procedural lapses, disciplinary actions are taken against officers where warranted. This ranges from counselling and warning to stoppage of salary increment and dismissal. Government agencies take AGO's audit observations very seriously and are committed to rectifying the lapses. Where there are lapses, they will openly acknowledge and steps are taken to address them as soon as possible and lessons are shared across the entire public service. Government agencies are accountable to the Public Accounts Committee (PAC) for their corrective and preventive actions taken in reponse to these lapses.

Last, I wish to clarify a key point. The current lawsuit against the AHTC Town Councillors is based on claims for (a) breach of core fiduciary duties; (b) breach of duty in their capacity as fiduciaries to diligently exercise reasonable care and skill in the exercise of their powers and in a discharge of their responsibilities; and (c) breach of duty of care to AHTC under the common law tort of negligence. The lawsuit was instituted in the name of AHTC by an independent panel. The independent panel was appointed under the Town Councils Act pursuant to a consent order made between the AHTC and the Housing Development Board before the Court of Appeal to take such actions as the independent panel thinks it is in AHTC's best interest in light of the inappropriate payments that were identified. The key point is that the lawsuit was not brought by the Government. The lawsuit was not brought by the Government.

So, to conclude, it is wrong to compare the problem surfaced by auditors of AHTC to lapses by public sector agencies identified in AGO's reports. Government financial accounts are reliable and public funds are properly accounted for. There are proper rules and procedures in place to ensure checks and balances, and where lapses are found, agencies are prompt in closing the gaps and holding individuals to account.

In all these, we do not make light of any mistakes made. We run a clean system and we have every intention to run a clean and open system. Clean, transparent and fair. The fact that we run a large system with many volunteers, does not excuse us from making mistakes. But when we make mistakes, we found out, we tighten the process, we improve. We do not shirk our responsibilities or try to diminish the mistake by comparing with other people who have made other mistakes. We put in place our processes to check ourselves ahead of time, even before other people come and check us. And when other people come and check us, we work with them transparently, openly and to improve our system.

When mistakes are made, we take the necessary actions to put the system right and to punish any wrongdoing. We do not run away from them. Not like in other cases. And I think the public can have every confidence that this Government take our responsibilities seriously and transparently. We owe it to ourselves, we owe it to our nation that we abide by the highest standard in our duties, to our Ministries, organisations, but most importantly, to our people and country.