Minister for Law K Shanmugam said the audit report on the Aljunied-Hougang-Punggol East Town Council (AHPETC) raised four major issues.
Top of the list was the fact that its town councillors allowed unlawful payment of millions of dollars to related parties - this was in breach of their legal and fiduciary duties.
Speaking in Parliament on Thursday (Feb 12), Mr Shanmugam added that there was a lack of transparency or accountability in how the payments were conducted, bringing the integrity of the town council into question.
He said that AHPETC had first hired FM Solutions and Services (FMSS) to be its managing agent (MA) in 2011. The company was set up by Mr Danny Loh Chong Meng and Ms How Weng Fan, who are husband and wife. Mr Loh also owned FM Solutions and Integrated Services (FMSI), a sole proprietorship.
Mr Shanmugam said that, since 2011, three more contracts were given to FMSS, for a total contracts value of about S$27 million. He noted that Mr Loh and his wife later became secretary and general manager of the town council respectively. Another FMSS shareholder, Mr Yeo Soon Fei, also became AHPETC's deputy general.
"WHERE DID THE MONEY GO?"
"One has to ask, Ms How and Mr Yeo were employees of the Hougang Town Council. They could have been employed by AHPETC. There was no need to set up a new company to provide services to the town council," said Mr Shanmugam.
"So why set up FMSS? It was a convenient vehicle to which millions of dollars went from the Town Council. And another obvious question: money that went to FMSS - where did it actually go? What happened to it?"
On the payment structure between the town council and FMSS, Mr Shanmugam said that invoices were first issued by Mr Loh and Ms How on behalf of FMSS and FMSI. Acting on behalf of AHPETC, the couple in some instances certified the work for payment then issued and approved the cheques for payment to both FMSS and FMSI - which the couple owned.
Around S$6.6 million was paid out for the financial year of 2012 to 2013.
"This process is unacceptable. It is also unlawful," said Mr Shanmugam. "In all these 25 years, in no other town council except AHPETC are the secretary, the general manager, the deputy general managers' of the town council not just employees of the MA, but also complete owners of the MA. Their ownership interest and control of the MA is what distinguishes AHPETC from all other town councils."
AGENT FEES "INFLATED" TO BENEFIT FMSS
Mr Shanmugam said that it is a "real conflict" when the couple issued invoices on behalf of their own companies, verified work done by the companies, certified the payments to those companies, and then approved and even signed the cheques.
He also said that the managing agent fees had been inflated to benefit FMSS, adding that the company had charged the town council around S$7.43 for every residential unit and S$14.92 for each commercial unit - significantly higher compared to other town councils.
"The rhetoric from the Workers' Party is always about helping the poor man. The reality is that the Workers' Party took money from the man in the street to give to their friends in FMSS," said Mr Shanmugam.
"Mr Low and Ms Lim keep saying there has been no loss. Maybe there was no one taking money, through the backdoor in the dark of the night. There was no need because the money was taken from the front door, in broad daylight through all this overcharging."
The second major issue raised was the lack of transparency - Mr Shanmugam said that there has been no full disclosure and proper discussion on the connected parties involved: "The fact that Mr Loh, Ms How and Mr Yeo owned FMSS, that is obviously important. You would expect it to be disclosed and discussed at the town council meeting.
"But strangely, nowhere in the minutes of town council meetings was any such disclosure recorded. Instead, it gets very curious: the minutes show that between August and September 2011, the town councillors were given limited disclosure. They were only told that Mr Loh and Ms How were directors and employees of FMSS. Very odd."
Mr Shanmugam noted that when queried on its accounting processes by PricewaterhouseCoopers as part of the AGO's audit, the town council chose to evade the questions.
"Why doesn't the town council give proper answers instead of playing hide and seek? What are you hiding? This is not negligence. It is an active decision to suppress information. It raises the issue of integrity," he said.
Mr Shanmugam said that this pattern of "non-disclosure and murkiness" has been a constant and troubling feature of how AHPETC has been run.