ALLEGED FRAUD AT SLA

ALLEGED FRAUD AT SLA:

(Lessons learnt): 5.

Mdm Halimah Yacob asked the Minister for Finance (a) what lessons can be learnt from the alleged cheating incident involving two SLA employees; (b) whether there were any lapses in the Government guidelines for finance and procurement processes; and (c) what steps have been taken to strengthen the internal processes to help prevent a recurrence of such an incident.

6.

Mr Low Thia Khiang asked the Minister for Finance whether the alleged fraud of $11.8 million committed in the Singapore Land Authority has exposed a gap in public sector financial governance regulations and their implementation.

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7.

Assoc. Prof. Fatimah Lateef asked the Minister for Finance (a) if there are any requirements for Government agencies to have in place industry-specific guidelines and policies for managing fraud risk besides those for general risk management; and (b) whether there are clear pathways or channels for whistle-blowing.

The Minister for Finance (Mr Tharman Shanmugaratnam): Mr Speaker, Sir, if I may take the next few Questions together?

Mr Speaker: Yes.

Mr Tharman Shanmugaratnam: Mdm Halimah Yacob and Mr Low Thia Khiang had asked if the alleged fraud at SLA, and I suppose IPOS as well, exposed gaps in the rules and guidelines governing finance and procurement processes in the public sector.

The recent cases at SLA and IPOS did not come about because of gaps in rules and guidelines in public sector procurement. In particular, in procurement, the required segregation of roles between officers evaluating quotations or bids and those making the awards was in place in the two agencies during the period in question. The SLA and IPOS cases instead occurred because individuals, allegedly, colluded to get around the required checks and balances to cheat the system.

However, the cases reflected two weaknesses. First, failure in supervision. Good supervision requires not just knowledge of the Government rules and procedures, but continual vigilance. This vigilance was lacking in those responsible for supervision of the IT Department at SLA and IPOS at the time. Second, there were gaps in internal audit in both agencies. As the Minister for Law has just stated, the Ministry of Law has acted to rectify the shortcomings both in supervision and audit.

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The Ministry of Finance (MOF) reviews public sector procurement rules and guidelines on a regular basis. In fact, following the alleged fraud cases at SLA and IPOS, a further review of public sector rules was undertaken. This included a comparison with best practices in the private sector. The review affirmed that the public sector procurement rules, for both quotations and tenders, were fundamentally sound. There are appropriate checks and balances built into the system of procurement based on quotations, and these apply to lower value transactions (in other words, those below $70,000). All public sector agencies follow more stringent processes for larger value procurements, for which tenders have to be called. For example, tenders have to be approved by tender boards comprising three individuals. Tenders account for some 95% of total Government procurement.

We are nevertheless looking into possible improvements to the system. For example, MOF will encourage agencies to adopt good practices, such as the periodic rotation of officers with procurement responsibilities, whenever feasible. It was, in fact, through a rotation of IDA officers in SLA that irregularities were detected in the recent case.

In addition, IDA intends to help agencies, including statutory boards, to strengthen the management and monitoring of IT maintenance services. It will also help them draw up the scope of audit of IT procurement, which is more specialised than other types of procurement. This is an example of the industry-specific approach that Assoc. Prof. Fatimah Lateef had raised.

But even as we seek improvements to the system wherever possible, the safeguards must be workable. We must ensure that procurement can be carried out efficiently, and we do not add layers of bureaucracy to perform more checks

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and balances. We should do what we practically can to reduce the risk of fraud, but keep Government lean, efficient and responsive.

What matters, therefore, is to have a sound and practical set of rules, and to back them up with effective supervision on how they are implemented. This does not mean that a supervisor has to take on the role of approving quotations or transactions personally. But proper and alert supervision will make it less likely that irregularities in budgeting and procurement will pass unnoticed. MOF has reminded all Government agencies of the importance of vigilant supervision of procurement operations to minimise opportunities for fraud.

We nevertheless will not be able to eliminate human lapses in supervision entirely across the public sector. This is why we need a robust system of audit to help detect procurement irregularities as well as deter potential misdoings. Internal audit plays an important role in public agencies, whether undertaken within the organisation or outsourced to commercial auditors. Last year, the Auditor-General's Office (AGO) conducted a review of the governance framework and internal audit practices of statutory boards. Based on its findings, it has established a set of best practices in June this year, which MOF has circulated to all statutory boards. This exercise pre-dated the SLA case coming to light.

A second level of audit comprises external audits. Statutory boards' financial statements are subject to annual audits by either the Auditor-General or external commercial auditors. These regular annual audits are for the primary purpose of expressing an opinion on the financial statements and do not focus on internal controls. In addition, therefore, the Auditor-General's Office periodically audits statutory boards in selected areas of internal controls, compliance with

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regulations and avoidance of waste. Each year, the Auditor-General's Office carries out such audits of all 15 Ministries in Government, all nine Organs of State and around 18 other entities which are mainly statutory boards. The Auditor-General's Office last audited the SLA in FY 2007/08 with the field work being done in 2007. It began its audit of IPOS in December last year, before the recent case of alleged fraud surfaced.

The Auditor-General's Office cannot audit all 64 of our statutory boards in all areas of their operations every year, and hence directs resources towards areas of greater significance. In the light of the SLA and IPOS cases, the Auditor-General's Office will re-prioritise the areas being selected for audit in the next audit cycle to give greater attention to IT services procurement and contracts. However, the external audits performed by the Auditor-General's Office serve as an extra layer of check, and are not a substitute for the statutory boards' internal audit responsibilities.

I should add that soon after the discovery of alleged fraud in SLA, the Government had also performed checks on all transactions involving the two officers suspected of fraud as well as all transactions between public sector agencies and the specific vendors involved in the SLA case. This was indeed how the alleged fraud at IPOS was surfaced.

There is a further safeguard, which Assoc. Prof. Fatimah Lateef referred to in her question. We must ensure that channels are open for whistle-blowing, because that too has a role to play in uncovering fraud. Within the Civil Service, there are established channels for officers to provide feedback and report wrongful practices. Officers can report cases of misconduct to their supervisors, the HR

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department, the Permanent Secretary or the Head of Civil Service. They can also report matters pertaining to conduct and discipline in the Civil Service to the Public Service Commission. Feedback, whether from public officers or external parties, is taken seriously and acted upon. In fact, in response to specific feedback in the past, the Auditor-General has carried out audits of selected financial transactions with the purpose of uncovering irregularities, including fraud.

The Singapore Public Service has, over the years, established a track record of clean and effective governance. From time to time, however, there have been dishonest public servants, who have found ways to get around the rules for personal gain. The Government takes a very serious view of each such incident. One of the strengths of our system is a robust process of investigation and prosecution, to bring perpetrators of fraud or corruption to justice and deal with them with the full measure of the law.

In sum, I am sorry to have taken a bit of time on this – there are several elements involved in keeping the integrity of our system of public sector procurement. It takes sound rules and safeguards, operated by upright officers and backed up by conscientious supervision and audit; open channels for possible wrongdoings to be reported; and, finally, the deterrent effect of robust law enforcement. We have a working system, and I assure Members we will keep improving it wherever possible.

Mdm Halimah Yacob: Sir, I want to thank the Minister for his clarification but I am a little puzzled because the Minister said that there are no gaps in the rules and guidelines. Yet, at the same time, the Minister did say that gaps in the supervision on the part of the supervisors. So, obviously, there is some systemic problem involving supervision of officers for auditing purposes. My second question

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is: if the Auditor-General cannot audit all the agencies in a particular year, does that also then open the door for such frauds to take place? People know that in a particular year, which statutory boards or agencies are being audited and therefore they do have sometime in order to commit those frauds. My third question is to ask whether this is confined to IPOS and SLA or whether there are other statutory boards involved? Is there a check being done on other statutory boards to see whether there are any other fraudulent attempts on the part of staff in those statutory boards as well.

* *Mr Tharman Shanmugaratnam: First, I do not think they have a systemic problem. As I have explained, the rules and guidelines are in place. They are not out-of-sync with best practices elsewhere, including in our private sector. We will fine-tune and refine them from time to time and, indeed, there are some refinements we are thinking about. But the rules and guidelines are not what explain what happened at SLA and IPOS, and they in fact had practised the rules and guidelines. There was human failure. Human failure, first, in supervision and, second, in audit.

There is no reason to believe that these human failures are widespread. But we are alert. MOF has reminded all statutory boards, quite apart from our Ministries, to pay more attention to supervision of procurement. We have provided a detailed checklist of questions that have to be asked on matters of procurement, including procurement of IT and maintenance services. IDA, on its part, is seeing how it can help agencies, including our small statutory boards, to improve the management of IT maintenance services and how we can also strengthen audit of IT maintenance services because this is a more specialised area than procurement in general, or audit in general. So, we are seeing how we can improve the system but there is no

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reason to believe that the problems are systemic.

The Auditor-General's Office cannot, as Mdm Halimah mentioned, audit all 64 statutory boards in all areas every year. The primary responsibility rests on the statutory board itself. Its internal audit responsibilities are its responsibilities and the board's responsibilities. That of the board and the audit committees'. And it is a requirement for statutory boards to set up audit committees. The Auditor-General's Office provides an important second check. It focuses on selective areas of internal audit in each audit cycle. From time to time it will re-prioritise and, indeed, following the SLA and IPOS' cases, it will be placing more emphasis on IT procurement. But we should try and avoid the temptation to look backwards at the last mistake, at the last mishap, the last occurrence of fraud and focus all our resources on avoiding that. Because it could be something else the next time. So we have got to maintain a balance, keep our priorities and keep people guessing as to what the Auditor-General is going to focus on. The Member had a final question which had to do with other statutory boards. I can assure Mdm Halimah and Members that we have been reminding all our statutory boards of the need for vigilant supervision of procurement operations and, specifically, on IT maintenance operations, the need for vigilant audits of these operations.

Mr Low Thia Khiang: Sir, the Minister said that this is a case of human failure or perhaps the supervision problem of the officer concerned. I would like to ask what MOF is doing to deal with the problem of human failure and what are the safeguards to make sure that the supervisors do supervise properly and also, who supervises the supervisors? Second supplementary question, Sir. Does the Minister not agree that as a layman, it will be difficult to understand, despite the internal audit, external audit

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and whatever stringent rules that MOF lays down on the Civil Service on procurement procedures, and yet this could happen and it is a huge sum of money that is being cheated out of the Government's coffer by the officer and not only in one Ministry, but also in some other agency as well and during such a long period of time? So the question is: what is internal audit, external audit and supervision for? From a layman's point of view, I suppose it should be very stringent and should have prevented all these happenings.

* *Mr Tharman Shanmugaratnam: First, I agree as a general proposition that we should try to minimise the risk of any such occurrence. I think Mr Low will agree with me that there is no system – private sector or public sector – which can eliminate it entirely because from time to time there are, unfortunately, lapses in human conduct, and I am not referring to the chaps who allegedly perpetrated fraud but to lapses in supervision. We have got to try and minimise those lapses. But there is only so much you can do through rules and guidelines. For instance, one way of minimising lapses is to have more people involved. For tenders, for instance, for large transactions – it is a much more robust process. First, robust process of assessing the need for a tender; robust process of assessing the bids that have come in; and the final approval processes are more onerous. Several individuals involved, and sometimes several layers of individuals involved. If we do that for every single procurement transaction in the Government, it would really slow things down. It would make Government less efficient and less able to serve the needs of the public. So we have got to make sure the rules and guidelines are sound but focus on backing them up with vigilant supervision. And that is not just an empty pronouncement. We are also providing guidelines on supervision which

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Ministries and statutory boards should take heed of, and some helpful tips on how to go about supervising procurement operations. Quite specific tips, for instance, on how you search through the data to see if certain companies are appearing too frequently or detect certain trends in the data that should be a red flag. So this is something we are improving but I do not think that we would be able to eliminate all human failure for all time in all agencies. I say that without the slightest suggestion of complacency on our part. We do want to improve and minimise the risk of fraud. I think that answers your question.

* *Assoc. Prof. Fatimah Lateef (Marine Parade): Sir, I thank the Minister for the assurance and explanation. Can I ask: has the Ministry seen an increase in the number of referrals or complaints about fraudulent cases? Also, with this current climate in which we have sophisticated IT technology and so on, how many of these cases actually turn out to be true positives?

Mr Tharman Shanmugaratnam: I do not have as detailed data as Assoc. Prof. Fatimah Lateef may like but to just give a feel, the Auditor-General's Office receives roughly 50 cases of feedback, specific complaints or information on possible fraud or misdoings each year. It follows up on complaints which have some credibility associated with them and where there are some material, financial impact associated with them.

Mdm Ho Geok Choo: I would like to ask the Minister, as a matter of prudence, how would the Government consider fine-tuning the procedure of declaration of assets by civil servants and what checks are made to ensure that declarations filed in by the civil servants are true. In the case of the two SLA employees, what assets did they declare in their declarations?

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Mr Tharman Shanmugaratnam: On the last part of the Member's question, I would rather not get into the matter because investigations are proceeding on the two employees – what they did and did not do. On the declaration of assets by civil servants: actually the system is in place and it is quite robust. Whether someone lies or fails to declare his/her assets is a separate matter and, in this instance, the matter is being investigated.