Follow-up Actions on Lapses at Public Agencies Reported in Auditor-General's Report

6 Mr Liang Eng Hwa asked the Minister for Finance whether the lapses and inadequate financial controls reported by the Auditor-General in his Report for FY2015/2016 uncover any systemic flaws and how will the public sector entities strengthen their management of public resources to prevent future occurrence.

7 Mr Lim Biow Chuan asked the Minister for Finance whether the Report of the Auditor-General for FY2015/2016 has highlighted any repeated breach of financial regulations by any Ministry and, if so, whether any action will be taken against officers who fail to take remedial action to rectify the breaches.

The Senior Minister of State for Finance (Ms Indranee Rajah) (for the Minister for Finance): Madam, may I have your permission to take Question Nos 6 and 7 together?

Mdm Speaker: Yes, please.

Ms Indranee Rajah: I thank Mr Liang Eng Hwa and Mr Lim Biow Chuan for their questions. Let me first highlight that there are two types of audits that the Auditor-General's Office (AGO) conducts on Government agencies. Each is important in a different way.

The first concerns whether the accounts of Government agencies are reliable and prepared in accordance with the law. The second involves checks on individual public agencies' compliance with rules and procedures, for example, the rules that guard against wastage of public funds and excess spending.

The first issue is whether the accounts of public agencies are proper and reliable. AGO has given an unmodified audit opinion for the Government Financial Statements this year, just as in previous years. The same is true for the Statutory Boards, all of which received an unmodified audit opinion from their respective auditors for the financial year (FY) 2015/2016.

In other words, the accounts of the Ministries, Departments, Organs of State and Statutory Boards have all been found by independent auditors to be reliable and prepared in accordance with the law. Public funds are properly accounted for and we know what they are being used for.

The second type of AGO audit, as I mentioned, concerns the rules and procedures in individual public agencies, for example, those that aim at avoiding wastage. Are the rules adequate and were the rules complied with?

As we review AGO's findings in this regard, there are three key questions we ask within the Government and which everyone should be concerned about.

First, what is the scale of the shortcomings and do they reflect a systemic weakness in the Government? Second, is there financial malfeasance, for example, fraud or corruption? Third, how are Government agencies dealing with the lapses that are found so as to avoid the problems being repeated?

AGO's report highlighted several lapses amongst our agencies. However, I can say with confidence from this year's AGO report and past years', that there is no evidence of systemic weakness within Government agencies with regard to compliance.

Most of the lapses were due to non-compliance by individual officers. In some cases, individual agencies had not followed full and thorough procedures in approving contracts or payments, as required in our internal rules. The respective Ministries and agencies have, in all instances, taken steps to rectify the weaknesses identified.

It will be unrealistic to expect that there are no lapses found within the system each time a serious audit is done. With over 140,000 officers in the Public Service handling hundreds of thousands of transactions each year, human laxity or errors of judgement will happen. We take each and every lapse seriously, but if nothing was found by AGO, we would be very concerned about the independence and rigour of AGO's audits.

Secondly, there is no suggestion of financial malfeasance, such as fraud or corruption, in the findings of the AGO. If there are any suspicions of wrongdoing, AGO does not hesitate to report them to the relevant authorities and highlight them in its report.

From time to time, we do come across such instances. We have zero tolerance for fraud or corruption. Everyone knows this: the Government acts promptly and thoroughly to investigate such cases. Indeed, this zero tolerance has itself kept fraud and corruption in check.

This is why we have a situation in Singapore that many countries seek to emulate. Singapore has consistently been ranked by institutions, such as the World Bank and Transparency International, as amongst the least corrupt nations in the world, with the likes of Finland, Switzerland, Sweden and Denmark.

The third question is just as important. How do Government agencies respond to AGO's observations? The Auditor-General has himself noted from our public agencies' responses that they take the AGO audit observations seriously, including putting in place measures to prevent future occurrence.

The Permanent Secretaries of each Ministry and the Chief Executives of the Statutory Boards are responsible for ensuring that the lapses are rectified and steps are taken to minimise recurrence.

Mr Lim Biow Chuan asked about actions taken on officers responsible for lapses. Where there is evidence of individual responsibility for the lapses, the officers responsible have been subjected to the appropriate disciplinary actions. Twenty-eight officers have been counselled or warned arising from this year's audit findings. One officer was put on a performance review process for repeated poor performance and subsequently, left the organisation.

Let me highlight two areas where we have taken actions to avoid problems that tend to occur amongst our agencies. The first is contract management, particularly amongst agencies that do not manage construction projects regularly and, hence, may not have sufficient expertise and experience to robustly assess costs. The new Building and Infrastructure Centre of Excellence that we have set up under JTC this year will advise Government agencies which lack in-house expertise, and help us strengthen the public sector's capabilities in managing infrastructure projects.

The second example is procurement. As Members may recall, this was an area that needed improvement, as highlighted by AGO a few years ago. We took major steps to strengthen public sector procurement.

Since 2014, Permanent Secretaries and Chief Executives of agencies have been required to report to the Ministry of Finance regularly with an assessment of the findings in procurement audits and their follow-up actions. We published the Essentials of Procurement Handbook to ensure top management is apprised of procurement issues. The procurement specialist track was launched in 2014 and we updated the accompanying training programmes to professionalise the procurement function. We also instituted the Procurement Leaders Programme to groom procurement leaders to better guide and supervise their officers.

We will continue to tackle all lapses identified each year with the same resolve.

So, let me summarise. We have a system that is transparent and accountable, and with the Government responding to every weakness that is found. The fact that we have found reports of lapses from AGO each year reflects this transparency and accountability. It is a part of the workings of a robust system – which includes a diligent and impartial AGO, and Government agencies that willingly submit to AGO's audit and have their lapses displayed openly and seek to rectify them promptly. It is not perfect, but it is a system that has given Singapore international recognition for clean and efficient Government.

Mdm Speaker: Mr Liang Eng Hwa.

Mr Liang Eng Hwa (Holland-Bukit Timah): Madam, I would like to ask the Senior Minister of State what is the distinction between the AGO's report and that of the KPMG audit report on Aljunied-Hougang Town Council (AHTC), given that they also uncovered a series of lapses, as people may be confused and draw comparisons and similarities between the two reports. Would the Senior Minister of State give us proper perspectives on this, to borrow the words of Ms Sylvia Lim?

Ms Indranee Rajah: Madam, I thank Mr Liang Eng Hwa for his question. There is a world of difference between the lapses found in Government agencies and those of Aljunied-Hougang-Punggol East Town Council (AHPETC) or now known as AHTC. They are different in scale, in nature and in the way Government agencies and the Town Council have each responded to problems when they are found.

First, AHPETC's accounts have been unreliable. Its own auditors repeatedly gave the Town Council a "Disclaimer of Opinion", which is the least desirable audit opinion. AGO concluded in 2015 that there was "no assurance that AHPETC's accounts are accurate and reliable or that public funds are properly spent, accounted for and managed." There is no similar problem in the Government.

The accounts of Ministries, Departments, Organs of States and Statutory Boards have all been found by AGO and independent auditors to be reliable and prepared in accordance with the law. Public funds are properly accounted for and we know what they are being used for.

Second, the problems at AHTC, formerly AHPETC, are of a systemic nature, not just a matter of individual lapses. The independent accountant, KPMG found a further 70 control failures in AHTC in addition to the 115 found previously by AGO and statutory auditors. To quote KPMG in their July 2016 report, "Control failures are pervasive, cutting across key areas of governance, financial control, financial reporting, procurement and records management over the course of five years …. there is an issue larger than the sum of individual lapses at AHTC". As I explained earlier, there has been no such systemic problem in the Government. From this year's and past years' AGO reports, there is no evidence of widespread compliance problems. There is certainly no culture of non-compliance.

Third, in the case of AHPETC, there are serious issues to do with personal gains from related third-party transactions. The general manager, deputy general manager and secretary of the Town Council were also the owners and directors of FM Solutions and Services Private Limited (FMSS) which provided managing agent services to AHPETC and received payments. In addition, the secretary of AHPETC was a sole owner of FM Solutions and Integrated Services (FMSI) which provided maintenance and lift rescue services to AHPETC and, likewise, received payments.

In a review carried out by the Accounting and Corporate Regulatory Authority (ACRA), it was found that the profit margins of FMSS were abnormally high. The total payments by AHPETC to FMSS owners and directors amounted to 22% of FMSS' revenue in FY2012/2013 and grew further to 36% in FY2013/2014. The conflicts of interest highlighted by AGO in the AHPETC case are fundamentally different from the case of Nanyang Polytechnic (NYP) and its subsidiary, NYP International (NYPi), that was highlighted in the AGO report.

As explained by Acting Minister for Education, Mr Ong Ye Kung yesterday, in the case of NYP and NYPi, there were no questions of personal gain. There was no personal interest involved on the part of the directors of NYP and NYPi and no leakage of money to any third parties. NYPi is wholly owned by NYP and any profits made by NYPi will only benefit NYP.

Fourth, our Government agencies and AHPETC have been completely different in the way they responded to problems when they are found. Notwithstanding the shortcomings and failures identified by their own auditors and, subsequently AGO, AHPETC did not take prompt measures to rectify these problems despite repeated requests by the Ministry of National Development (MND) to do so. This resulted in MND having to bring an application to Court and it was only after the Court order was made that KPMG was appointed as an independent accountant by AHPETC.

KPMG has been issuing monthly reports since April 2016. In its latest monthly report published in July 2016 – four years since AHPETC's auditors first voiced their reservations about the accounts – KPMG has stated that "progress remedying the control failures has been slow." We understand that AHPETC is working on its remedial plans. In the June 2016 KPMG report, AHTC has updated and implemented its revised conflict of interest policy which now extends to AHPETC's Town Councillors, management and employees, and supporting procedures to manage conflict of interest. However, the other remediation plans on the governance of related party transactions were still unresolved.

By contrast, every Government agency takes AGO findings seriously. Where there are lapses, they are openly acknowledged and steps taken to address them as soon as possible. The Auditor-General has himself noted their commitment to rectify the lapses and put in place measures to prevent future occurrences.

So, to conclude, let me emphasise once again that the lapses found in the Government are wholly different from AHTC's problems. Our accounts are reliable, unlike AHTC's. There is no systemic weakness in Government agencies, unlike what the auditors have found at the Town Council. Unlike AHPETC, too, there was no question of personal gains in any of the lapses highlighted in this year's AGO report. And finally, the Ministries and the agencies have, in all instances, taken steps to rectify the weaknesses identified. Our system is transparent, accountable and responsive and we look forward to the same in AHTC as it hopefully rectifies its problems.