SINGAPORE: About S$60 million of payments made by Aljunied-Hougang Town Council (AHTC) were recorded manually instead of going through accounts payable – a "significant control weakness", KPMG executive director Owen Hawkes said on Thursday (Oct 11).
Mr Hawkes was being cross-examined by defence lawyer Leslie Netto on day five of the landmark AHTC and Pasir-Ris Punggol Town Council (PRPTC) trial.
AdvertisementTwo lawsuits were brought by the two town councils against three Workers’ Party (WP) Members of Parliament (MPs) Sylvia Lim, Low Thia Khiang and Pritam Singh.
The other defendants are: AHTC town councillors Chua Zhi Hon and Kenneth Foo; employees of AHTC's former managing agent, who also held positions in AHTC, How Weng Fan and Danny Loh; and the managing agent FM Solutions and Services (FMSS) itself.
[h=3]READ: Defence lawyers in AHTC trial slam the way KPMG compared managing agent costs[/h]In his answers to Mr Netto, who acts for FMSS and its two employees, Mr Hawkes revealed that AHTC withheld a quarter of a million dollars from FMSS’ fees as a result of the deficiencies flagged by the 2015 report by the Auditor-General’s Office.
AdvertisementAdvertisementThe report had found what it called major lapses in governance and compliance at the town council, and it was after this report that KPMG was appointed to look into AHTC’s accounts.
KPMG spent about 22 months with AHTC working on their financial controls, Mr Hawkes said. There were “some significant issues” found during KPMG’s monthly review with AHTC during the period that “I think it will be hard to say that they were happy (with FMSS)”.
According to KPMG's July 2016 report on its progress with AHTC, it observed “extensive use of manual journal entries that bypassed accounts payable used to record payments totalling S$60,660,927 to third parties”.
“This highly irregular shortcut makes effective oversight of payments by the finance department practically impossible,” continued the report. “Such large-scale use of this practice raises questions about the management of AHTC’s finance function.”
When prompted by Justice Kannan Ramesh to explain this, Mr Hawkes said the S$60 million of payments, mostly for utility bills, were processed using manual journal entries. This method “effectively bypassed controls” that would have been exercised if they had gone through accounts payable instead.
“Accounts payable is one of the more significant part of controls town councils would have,” Mr Hawkes said. He added that this was a “significant control weakness” and AHTC was “obviously concerned” when KPMG identified and discussed it with the town council.
“I think it was clear at the time that they were not very happy,” Mr Hawkes said, answering Mr Netto’s question as to whether there was any instance when AHTC was unhappy with the performance of FMSS.
FIVE YEARS A LONG TIME FOR PROBLEMS TO REMAIN IN ACCOUNTS: KPMG
During his cross-examination, Mr Netto raised an issue which another defence lawyer had raised, about the withdrawal of the town council computer management system (TCMS).
According to the defence, when WP assumed management of the former Aljunied Town Council after they won Aljunied GRC in the 2011 General Election, the financial and accounting software TCMS was terminated by IT firm Action Information Management.
The TCMS software belonging to People's Action Party (PAP) town councils had been sold to Action Information Management in 2010 in an open tender.
[h=3]READ: MND had 'no difficulty' accepting AHTC's waiver of tender for managing agent, says defence[/h]Addressing Mr Hawkes, Mr Netto said: “You talked about the accounting problem, and this had got a lot to do with the upgrading of the computer system, and they are not denying it. (This was) because the TCMS was taken away. Are you aware that it was?”
“I’m aware that it was taken away by AIM (Action Information Management), and it’s likely no small task to replace your accounting system,” Mr Hawkes said.
“However, by the time KPMG was instructed to perform our review of various instances of non-compliance of the Town Councils Act, that was about five years later, which is quite a long time later, and when we looked into, for example, some of the entries in the account system, some of those entries dated back to 2011 and had never been investigated … I don’t think five years later, the accounting system should still be in a problematic state.”
Mr Hawkes was released as a witness on Thursday morning. The next witness to take the stand is PRPTC's witness, PricewaterhouseCoopers partner Goh Thien Phong. He will first be cross-examined by Mr Chelva Retnam Rajah, defence counsel for the WP MPs and AHTC councillors.
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