Town Council trial: An accounting or political issue?

First, an admission. I was in court only for a day, and not even the full day, to hear the lawsuits involving the Workers’ Party town council. I caught the final part of KPMG’s Owen Hawkes testimony in court and the beginning of Price Waterhouse Coopers’ Goh Thien Pong’s cross-examination on Thursday.

It was, to put it plainly, tedious listening. Files were piled high around the lawyers and the witnesses and plenty of references made to this or that page, file, email, correspondence, invoice, serial number, payment voucher, work order and other terms that bean counters would be more familiar with. This meant that there were frequent spans of silence as lawyer and witness – as well as judge – try to, literally, get on the same page.

If there was anything to be gleaned from the six days of proceedings reported in The Straits Times, Channel NewsAsia and TODAY, it is that every single thing discussed, ordered and paid for in a town council had to be nailed down in black-and-white. Not only that. They must be filed in the relevant column, relevant document and signed off by the relevant people. Which means that the different parties must know about standard operating procedures of the town council which, again, has to be put down somewhere in black-and-white, and not merely in the form of instructions or guidelines via email. And all this must fit in with the Town Council Financial Regulations that govern all town councils. Phew.

Yup, it’s a bureaucracy that’s bound with red tape. I guess a layman, including me, would either yawn or gasp at the incredible amount of verification and cross-checking that has to take place and wonder about the necessity of some steps. Signing off on something, for example, doesn’t mean you’ve read it or checked it – but it must be assumed that you’ve done your due diligence. And does it matter if you’ve missed a step when you are sure others have done their part?

Rules are rules, the two auditors made clear. They must be uniformly and consistently applied.

So what are the lawsuits about? Here’s a quick re-cap:

1. It isn’t just one, but two lawsuits. They were filed by Aljunied-Hougang town council (via an independent panel) and Pasir Ris-Punggol town council, which belongs to the People’s Action Party.
2. The two lawsuits are filed against the same people though: three WP MPs who held/still hold positions in the town council, and five others including the managing agents who run FM Solutions and Services. In addition, the plaintiffs want WP MPs Sylvia Lim and Pritam Singh to pay more than $2m in damages because a higher-priced architect was hired for seven of 10 contracts.
3. The lawsuits are about a sum of some $33.7m which the auditors calculate and contend were improper payments for various reasons: like paying more than the town council should have, not having proper documents or no documentation, missing signatures, all while there is a conflict of interest as the managing agents also hold town council positions.

Some new information that wasn’t available to the auditors at that time emerged during the trial, such as how some documents were already delivered to the PRPTC when it took over Punggol East from the WP in the last General Election and some emails giving reasons for hiring one contractor over another. Both auditors, however, stuck to their positions that as far as they were concerned, payments were improper, policies were inconsistent  and that whatever controls that were said to be in place were simply insufficient.

If you go by the book, it looks like the plaintiffs have a strong case because most of point c is accurate. But this is a court case, which means the defendents have a lot to say about why things are what they are and it doesn’t mean that they have neglected their duty to serve the residents or didn’t exercise enough oversight.

So the defence lawyers  Chelva Rajah and Leslie Netto, beyond contending that some of the auditors’ sums were wrong, have raised other issues that are more “accessible’’ to the laymen. This includes how the opposition had been stymied by the PAP machinery right from the beginning and how the auditors did not take into account “human’’, “social’’ or “emotional’’ factors involved.

“I am an accountant,’’ said KPMG’s Mr Hawkes at one point when pressed about whether he took into account possible job losses in the town council should the original managing agent, CPG Facilities, be retained by the WP to run Aljunied-Hougang TC.

He added: “While I do understand these are employees of an organisation and there is a potential they would lose their jobs … What we’ve been asked to do is to account for the cost of AHTC in taking on one of two managing agents.”

Nor was “trust’’ an element that accountants considered when doing its work, when Senior Counsel Rajah suggested to him that the FMSS husband-and-wife owners Danny Loh and How Weng Fan were “reliable and trustworthy” individuals known to the elected town councillors for “many years”.

“Trust is not the control, but is in fact the enemy of control,” he replied adding later that he didn’t think there was total trust between the MPs and the managing agent because the MPs were kept out of the loop on some conversations because the agents wanted to be in “self-protection’’ mode.

“Notwithstanding that you know somebody and trust them, you can’t forgo control,” Mr Hawkes added. He also contested the point that the MPs were happy with the work of FMSS, or they wouldn’t have held back some $250,000 in payments in February 2015 to make up for its deficiencies.

Lawyer Mr Netto, however, was positive that theMPs would have a different view: “I think we’ll have to listen to the MPs when they come on the stand. I think you’ll see that they are happy.”

At another juncture, Mr Rajah asked PwC’s Mr Goh: “Did your report deal with the factors, the compulsions that caused the defendants to seek the assistance of (FMSS early on) to prevent the intended tripping of (AHTC)?”

Mr Goh replied: “We don’t consider emotional factors.”

“That is a factor of political life,” Mr Rajah said.

The hiring of FMSS is a major plank of the plaintiffs’ case, as the managing agent was also signing off on payments to itself.

Here’s where the defence is making much hay of what happened in 2011: That it was CPG, the PAP’s former managing agent, who wanted out of the contract and yesterday, it transpired that it could only continue to work if it used a certain computer system which had been pulled out of use. That system is the much-touted system run by Action Integrated Management, a PAP-owned company.

The auditors stuck to their guns on how CPG should have been persuaded to stay on to serve out the rest of its contract – or put out a tender.  Retaning CPG would have saved the town council costs. Instead it resorted to the expedient option of using agents who were not familiar with running a far bigger place than they are used to.

The two auditors took every blow as they came, sticking to the script on the need for proper financial controls and oversight.

There were two points when KPMG’s Mr Hawkes was caught flat-footed. He couldn’t give a direct answer when asked how to account for why the G had openly said it had no problems with WP waiving a tender for a managing agent at that time and hiring FMSS. He also said he did not know that the secretary of the previous PAP town council, Mr Jeffrey Chua, was also managing director of CPG and had shares in CPG’s holding company. Still, he said:  “The question is not whether there is a conflict of interest. The question is how severe is it and what are the steps taken to manage it.’’

Mr Hawkes recovered considerably when the argument turned to whether the town council could even have worked effectively as it was “stripped’’ of its computer system. He conceded that even though the town council had a hard time initially trying to introduce and scale up a new computer system, everything should have been in place after five years.

PWC’s Mr Goh, however, drew some laughter in the courtroom when he insisted that processes must be followed to the letter, like attaching photographic evidence that polling stations for the last general election had been set up according to specifications before paying the contractor, even though Mr Rajah noted that the GE has “come and gone’’.

I don’t have the list of witnesses but it appears to me that CPG should be called to the stand to expound on its side of the story. It also seems that more information should be available on the practices of other town councils, such as whether they too parked similar contracts under project management services that had to be paid for, rather as part of the managing agent’s duties.

For example, Mr Rajah told Mr Hawkes that the former managing agent, CPG, had also charged the PAP town council similar fees, adding: “But you reviewing the project documentation thought otherwise?”

Mr Hawkes replied: “That is correct, and it wouldn’t be the first case (where a client has disagreed with an accountant’s definitions)… Our view was that this fell under basic services, at least in part.”

I wonder if other auditors agree.

It shouldn’t surprise anyone that the defence keeps referring to the elephant in the room, the residents under the WP’s charge, in the cross-examination. Mr Netto kept asserting that the residents are happy, something which the auditors should have considered as services that have been “satisfactorily delivered”. Those who are flummoxed by the complexity of this case will probably have the same question.

Mr Hawkes’ retort: “The suggestion isn’t that the lifts didn’t work and the streets are dirty,” he said. “Having been to Hougang on many occasions, it’s not some kind of ‘Mad Max’ or wasteland…

“It’s the management of the town council’s affairs itself, rather than the maintenance that concerned us.”

In other words, this is an accounting problem, nothing to do with politics as far as the auditors were concerned. It is about financial propriety and controls which is probably an arcane subject to most residents.

It must be noted that the case so far has only involved the defence lawyers and auditors. The plaintiff’s lawyers have yet to make their case nor have the politicians taken the stand. That’s when we can expect fireworks.