Former managing agent made gross profits off AHPETC: MND

SINGAPORE — The former managing agent for Workers’ Party-run Aljunied-Hougang-Punggol East Town Council (AHPETC) has been “grossly profiteering” from its work for the town council — which was its only client — making net after-tax profit of as much as S$2 million in financial year 2013/2014, after paying its directors/shareholders more than S$1.1 million in fees and salaries.            

In a press statement issued today (Aug 29), the Ministry of National Development (MND) detailed the finances of FM Solutions & Services (FMSS), following an ad hoc review conducted by the Accounting and Corporate Regulatory Authority (ACRA) of the company’s auditor Teo Liang Chye & Co.

 “In FY 2013/2014, while AHPETC suffered an operating deficit of S$2 million, FMSS made a net after-tax profit of S$2 million, after paying its directors/shareholders fees and salaries amounting to S$1.14 million,” MND said, adding that FMSS – which was owned by WP supporters, the late Mr Danny Loh and his wife, Ms How Weng Fan – has been “grossly profiteering off its sole client”. Mr Loh, who died last month after a fall while on holiday abroad, and Ms How were also the town council's secretary and general manager, respectively.

FMSS was AHPETC’s managing agent from Jul 15, 2011 to Jul 14 this year. WP had announced in June that it would run AHPETC on its own from last month, after a three-week tender it held last November did not attract a single bid, even from FMSS. The Opposition party had earlier rejected Law and Foreign Affairs Minister K Shanmugam’s assertion that AHPETC had overpaid FMSS, saying that the managing agent rates it paid to FMSS was largely based on those previously charged by the former People’s Action Party-run Aljunied Town Council.  

In AHPETC’s FY 2013/2014 financial statements and reports, its independent auditor — Audit Alliance LLP — found that the town council’s deputy general manager, who was also a shareholder and director of FMSS, certified invoices received from FMSS totalling S$2.1mil on behalf of the town council. Subsequently, the employee also approved the related payment vouchers by the town council to FMSS, with no segregation of duties, MND said.

“This reinforced MND’s concerns about the town council’s state of financial management, and in particular, whether payments made by the town council to FMSS were valid and proper,” the ministry said. MND said that on Jul 9, shortly after the ministry received the financial statements and reports, it wrote to ACRA to “ask if ACRA had any concerns about the quality of FMSS’ accounts and the audit process that validated them”.

In response, ACRA commenced a practice monitoring review on FMSS’ auditor Teo Liang Chye & Co, on Aug 14, after giving the auditor one month’s notice. MND said ACRA has completed its review and the ministry was informed of the findings on Thursday.

“On examining the accounts, MND has found gross profiteering by FMSS, at the expense of AHPETC, its sole client,” the ministry reiterated.

‘PUBLIC MONIES AT STAKE’

For FY 2012/2013, FMSS made a profit after tax of S$510,904. This was after it paid its three owners/ directors, fees and salaries of S$702,295, as well as consultancy and secretarial fees of S$300,000.  Total payments to the three FMSS owners/directors – Mr Loh, Ms How and Mr Yeo Soon Fei - amounted to S$1,513,199.

For FY 2013/2014, FMSS made a profit after tax of S$2,035,784, after paying its four owners/directors, fees and salaries of S$839,696, as well as consultancy and secretarial fees of S$300,000. Total payments to the four FMSS owners/directors - Mr Loh, Ms How, Mr Yeo and Mr Lieow Chong Sern - amounted to S$3,175,480. On top of director fees and salaries, Mr Loh was paid S$180,000 in secretarial fees, Ms How S$108,000 in consultancy fees and Mr Yeo S$12,000 in consultancy fees.

MND pointed out that between FY 2012/2013 and FY 2013/2014, while FMSS’ revenue increased by 30 per cent in one year - from S$6,740,572 to S$8,773,429 - its profit after tax rose 300 per cent, from S$510,904 to S$2,035,784.

The ministry also observed that total payments by AHPETC to FMSS owners/directors amounted to 22 per cent of FMSS’ revenue in FY 2012/2013.  It grew further to 36 per cent the following financial year. “Such levels of profit margin are abnormal,” MND said. “As AHPETC was FMSS’ only client, these findings support MND’s earlier concern that the town council had overpaid FMSS excessively.”

The ministry added: “In addition, MND notes that AHPETC had an operating deficit of S$1.5 million in FY 2012/2013, and a further deficit of S$2 million in FY 2013/2014.  Had the town council not overpaid FMSS, it might well have had been able to break even.”  

Given that FMSS earned its revenues solely from AHPETC, and FMSS’ owners/directors also held key management positions in AHPETC, MND said it has written the WP chairman Sylvia Lim, who is also the immediate past-chairman of the town council, “to ask if she was aware of the extent of profiteering in FMSS, and if so since when had she known, and what she had done about it”.

As AHPETC had terminated its contractual relationship with FMSS, MND said it has also asked Ms Lim if she has examined past transactions of the town council with FMSS, and how she intend to recover the monies lost due to any overpayment.  

MND said: “As FMSS was paid using service & conservancy charges (S&CC) collections from residents and S&CC operating grants from MND, public monies are at stake. What happened between the town council and FMSS is not a private matter, but one which MND needs to look into.”

“MND is therefore making a public statement on this matter of public interest, which underscores why MND has applied to the Court to appoint independent accountants.”