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S$50m unauthorised investment by Mindef among lapses flagged by AG

Auditor-General says some of the lapses led to loss of revenue and raised concerns about governance in government departments and stat boards


AN audit of Singapore government bodies has uncovered lapses in financial controls and governance of public funds - lapses which have led to the loss of government revenue and raised concerns over governance practices.

Among these were investments made by the Defence Ministry (Mindef) without proper approval or evaluation, and donations raised by the Nanyang Polytechnic for an unauthorised purpose.

Also uncovered in various government bodies were lapses in their administration of programmes, such as the lack of oversight by the Education Ministry (MOE) in the monitoring and enforcement of scholarship bonds; there were also failings in its management of contracts.

These were the main findings in the report by the Auditor-General (AG) for the financial year 2015/16, based on its audit of the financial accounts of government ministries, organs of state and statutory boards, among others.

The report said: "In this year's audits, the AGO (Auditor-General's Office) uncovered a number of instances of inadequate financial controls over government operations, including those outsourced to external operators. There were (also) cases of inadequate controls over the collection of fees resulting in loss of revenue to the government."

In one instance, the AGO found that Mindef had made a S$50.26 million investment in an American real estate investment trust exchange-traded fund without the requisite approval of the SAVER-Premium Fund's board of trustees. It also found that Mindef had made the investment through an investment manager without first obtaining the board's approval to appoint this manager to render such services.

In another case, AGO found that the Housing and Development Board (HDB) did not have adequate oversight of the operations of its car parks in industrial estates and residential estates that were outsourced to commercial operators. In many instances, vehicles were not charged parking fees and motorists evaded payment by manipulating the car park system.

There was also the case of the Land Transport's Authority's "weak" controls over the collection of toll at the Woodlands and Tuas Checkpoints, which resulted in an under-collection of toll amounting to an estimated S$13.93 million; this was a fifth (21.9 per cent) of the total toll collected the year before (FY2014/15).

Also flagged by the AGO in its report were instances of poor governance over the management of public funds. Specifically, this related to the dealings of Nanyang Polytechnic (NYP) with a subsidiary.

"AGO noted that some members of NYP's board of governors with vested interests in a subsidiary of NYP were involved in the evaluation and decision-making process on matters relating to the subsidiary, including the approval of a funding model that was more generous than that provided for in the government's instructions."

It also noted that NYP did not charge market rates for premises used by the subsidiary and had given funding in excess of that approved by the board. This resulted in hidden subsidies and excess funding totalling S$8.38 million given to the subsidiary from its inception in 2007 until March 2015.

"NYP's practices reflect a disregard for financial controls and proper governance," the AGO's report said.

The AGO also found that NYP had allowed the name of the Nanyang Polytechnic Education Fund, an Institution of a Public Character (IPC), to be used to solicit donations for a purpose not authorised under the fund. It said that, even after the AGO's enquiry, "NYP also did not take proper actions to regularise the matter".

The MOE came under fire for not maintaining adequate oversight of two universities' monitoring and enforcement of scholarship bonds.

It found 14 cases where Nanyang Technological University (NTU) and the National University of Singapore (NUS) either failed to send letters to remind scholars of their bond obligations and the consequences of not fulfilling them, or failed to send letters of demand to impose liquidated damages where warranted. The letters were late by as much as two years.

The AGO also observed that there were inadequate controls to ensure that tuition fee loans and study loans due - amounting to S$228.04 million as at June 30, 2015 - were promptly recovered. It noted that the two universities relied on outsourced agents to monitor and recover the loans, and that actions to recover and follow up on default cases were not taken in timely fashion in a number of instances.

"MOE also did not follow up promptly on long-outstanding loans surfaced by the outsourced agents for its review. Such control weaknesses would adversely affect the recoverability of the loans and increase the risk of loss of public funds," the AGO said.

There were also lapses in the management of contracts by the HDB and the National Arts Council (NAC). In its audit of the HDB, the AGO's test checks on the accounts of 36 contracts relating to the construction and upgrading of HDB flats, with final payments totalling S$37.62 million, revealed delays of up to 3.3 years in making final payments to contractors.

For the audit of the NAC, the AGO's test checks of contracts for the Victoria Theatre and Victoria Concert Hall Redevelopment project revealed that 47 out of 164 variation works were carried out before approvals were given. The delays in obtaining approval were up to 31/2 years.

Some of the ministries and stat boards in question have responded to the AGO report.

The MOE said in a statement that it takes a serious view of the issues flagged by the AGO, and that it has taken action "to rectify irregularities, as well as strengthen processes and internal controls".

It pointed out that "most of the lapses flagged by AGO were from earlier graduation batches", before the ministry had worked with the universities to tighten and enhance processes in monitoring and enforcing the scholarship bonds. It said default rates have fallen "significantly" over the last three years.

It said it would "continue to work closely with the universities to ensure that the processes are applied rigorously, and that international students take their obligations seriously".

NYP said in its statement that it has "commenced a detailed review of the areas highlighted to ensure that measures are put in place to effectively address the issues of concern".

It explained that selected board members and staff of NYP were appointed to the board of its subsidiary, Nanyang Polytechnic International Private Limited (NYPi) "to ensure alignment of objectives". It said NYPi's board directors do not receive separate directors' fees and that "none of the decisions cited in the audit observations yielded personal gain for any of the individuals involved".

Still, it said, it is putting in place a governance framework for its board members on the handling of transactions with NYP's subsidiaries. It added that it has started charging NYPi market rate rental and has informed NYP's board of the excess funding and is awaiting its decision.

As for the donations, NYP said the funds were originally raised to provide financial assistance to needy graduates and that it has informed MOE of this and has written to the donors to seek their approval to direct their donations to this purpose instead.