TWELFTH PARLIAMENT OF ______

Second Session ______

FOURTH REPORT OF THE PUBLIC ACCOUNTS COMMITTEE

Parl. 2 of 2015

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Presented to Parliament on

4 February 2015

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PUBLIC ACCOUNTS COMMITTEE

Members

Mr (Chairman) Mr Mr Ms Mr Ms Dr Mr

CONTENTS

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FOURTH REPORT OF THE PUBLIC ACCOUNTS COMMITTEE

Committee’s Queries and Ministries’ Responses in relation to Audit Observations in Auditor-General’s Report for FY 2013/14

Management of Land and Assets 1-2

Administration of Schemes and Programmes 2-4

Procurement 4-7

Other Lapses 7

APPENDIX

I Minutes of Proceedings 8-10

Blank Page FOURTH REPORT OF THE PUBLIC ACCOUNTS COMMITTEE

1 The Committee considered the Report of the Auditor-General for the Financial Year 2013/14 (Paper Cmd. 6 of 2014). The Committee’s enquiries into specific observations are discussed in paragraphs 2 to 44.

Management of Land and Assets

2 The Committee noted three lapses reported in the Auditor-General’s Report on the management of land and assets. The Committee was concerned over the weak management of resources, particularly the under-utilisation of land, buildings and assets resulting in waste of public resources. The Committee sought written explanations from the following Ministries on these lapses:

(i) Ministry of Defence (MINDEF); and

(ii) Ministry of National Development (MND).

MINDEF – Lapses in the Licensing of Land

3 MINDEF entered into a licence agreement with its contractor in 1995, to sublet land at a nominal rate for the contractor to use solely for the purpose of providing services to MINDEF. The Committee noted that MINDEF continued to charge nominal rent, even after the contractor was privatised in 2000 and had been using the land for commercial activities beyond providing services to MINDEF. The Committee was concerned that public resources might be used for subsidising commercial activities.

4 In response to the Committee’s query, MINDEF clarified that as the contractor was a wholly Government-owned company prior to 2000, there was no clause in the 1995 licence agreement to state that the land leased to the contractor was to be used strictly for the purpose of providing services to MINDEF and not for commercial activities. Following the audit observation, MINDEF entered into a new rental agreement with the contractor and would be charging the contractor annual rental for the land used for commercial activities, using revenue as a proxy.

MND – Under-utilisation of Land, Buildings and Facilities

5 The Agri-Food and Veterinary Authority (AVA) operates a number of laboratories and facilities at various sites in Singapore. The Committee was concerned over the under-utilisation of land, buildings and facilities at two of the sites, as reported in the Auditor-General’s Report, which had resulted in wastage.

6 MND informed the Committee that the AVA Board had asked its Management to conduct a comprehensive review on the usage of all AVA’s land, buildings and facilities, and report the outcome to AVA’s Finance and Audit Committee in early 2015. This review was carried out by a committee chaired by the Deputy Chief Executive Officer of AVA and covered the following areas:

1 (i) AVA’s current and future space requirements;

(ii) Recommendations and plans for the unoccupied facilities; and

(iii) Evaluation on whether some activities currently at the Sembawang site could be relocated to the Lim Chu Kang site, taking into consideration the possible changes to AVA’s business and space needs.

7 AVA had since completed its review for the Sembawang site and had submitted a land return proposal to the Singapore Land Authority.

MND –Under-utilised Equipment and Machinery

8 The Committee noted that some equipment and machinery held by AVA were under-utilised or left unused.

9 On the progress of follow-up actions taken by AVA, MND informed the Committee that AVA was reviewing the equipment and machinery highlighted in the Auditor-General’s Report. Those identified as no longer required would be put up for disposal. Departments have also been reminded to dispose of equipment and machinery in a timely manner to realise any salvage value and to free up storage space.

10 In addition, MND informed the Committee that AVA’s Finance Department had carried out independent checks on the assets to reinforce the need for review. Going forward, these independent checks would be carried out on an annual basis.

11 The Committee noted the responses from MINDEF and MND. The Committee would like to emphasise that public sector agencies should exercise greater diligence in managing public resources and review their usage regularly so as to optimise their use and minimise wastage.

Administration of Schemes and Programmes

12 The Committee noted the inadequacies and lapses in the administration of schemes and programmes reported in the Auditor-General’s Report. The Committee sought written explanations from the following Ministries on these lapses which could impact the effectiveness of the Ministries’ administration of such schemes and programmes:

(i) Ministry of Health (MOH); and

(ii) Ministry of Manpower (MOM).

MOH – Ineffective Control of Approval Process for Import of Medicinal Products

13 The Committee noted that the Health Sciences Authority (HSA) had lax controls over the approval of applications for import of medicinal products. The Auditor- General’s Office (AGO) found that 386 of the 1,479 import applications (26 per cent)

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checked contained errors. Such errors include missing, incomplete or erroneous requisite product information and/or importer licences.

14 In view of the many non-compliant applications and errors noted by AGO, the Committee asked MOH:

(i) Whether the importers had breached any regulation or law, pertaining to the 386 applications noted; and

(ii) Whether HSA or other authorities would be taking actions against importers which had breached the law.

15 MOH informed the Committee that HSA had conducted checks on the 386 import applications and verified that these 386 products had been licensed or approved for importation, although the information provided in the applications were incorrect.

16 The Committee noted that HSA would be enhancing the current trade declaration system so as to carry out 100 per cent system verification of information contained in the application forms electronically.

MOM – Lapses in Monitoring and Following Up of Erroneous Medisave Claims

17 The Committee noted lapses in the Central Provident Fund Board (CPFB)’s monitoring and following up of erroneous Medisave claims submitted by medical institutions. The Committee asked MOM for an update on the progress of the follow-up actions and the root causes for the lapses.

18 On the progress of actions taken by CPFB to rectify the lapses, MOM informed the Committee that CPFB had:

(i) Formalised and documented the procedures on follow-up of erroneous claims in June 2014;

(ii) Improved the tracking system on follow-up of claims in June 2014;

(iii) Sent reminders to all restructured hospitals to improve their medical classification of claim cases and to make the appropriate refunds to the claimants’ Medisave Accounts; and

(iv) Settled 90 per cent of erroneous claims as of January 2015 and was working closely with MOH on the recovery of the remaining claims.

19 MOM also informed the Committee that CPFB had been working with MOH since 2011 to explore various deterrent measures against medical institutions that made erroneous claims, such as the possibility of imposing administrative or penalty fees for erroneous claims.

20 The Committee was of the view that the issue of the erroneous Medisave claims submitted by medical institutions should be addressed at its source. The Committee

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asked MOM whether there is a system in place to help the staff at medical institutions submit the claims correctly.

21 MOM informed the Committee that the majority of the erroneous claims arose from misinterpretation of the surgical procedures and guidelines. To minimise erroneous claims, MOM informed the Committee that MOH has stepped up efforts to educate clinical practitioners and providers. MOH has also put in place a process to update the list of surgical procedures claimable under Medisave or MediShield more regularly to ensure that it keeps pace with medical advancements and takes into account feedback from the clinical community.

22 The Committee noted the responses from MOH and MOM. The Committee would like to emphasise that it is important for public sector agencies to address gaps or inadequacies in their work processes so as to ensure that the schemes and programmes under their purview are implemented effectively and can be reasonably complied with.

Procurement

23 The Committee noted that several observations reported in the Auditor- General’s Report relate to lapses in procurement. The Committee noted that there were lapses in the award of contracts to five incumbent contractors by HSA as well as in a limited tender called by the Standards, Productivity and Innovation Board (SPRING). The Committee sought written explanations from the following Ministries on the procurement lapses:

(i) Ministry of Health (MOH); and

(ii) Ministry of Trade and Industry (MTI).

24 The Committee also sought the views of the Ministry of Finance (MOF), which is responsible for Government procurement policies and rules, on management of contract variations which exceeded the approved original procurement values substantially.

MOH – Contracts Awarded to Incumbent Contractors that Did Not Meet Tender Requirements

25 The Committee noted that HSA had awarded contracts to five incumbent contractors even though their tender proposals did not fully meet tender requirements. For the tenders relating to blood processing and warehousing services, the Committee was of the view that fresh tenders should have been called as the original tender conditions and specifications were modified.

26 MOH assured the Committee that it takes a serious view of the lapses and would continue to strengthen its procurement processes. In particular, HSA has tightened its procurement process and amended its procurement guidelines to incorporate the following safeguards:

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(i) Ensure full compliance with the conditions of contract and tender specifications for all tenders;

(ii) Ensure that all tenders are evaluated against the evaluation criteria published in the Government Electronic Business (GeBIZ) system;

(iii) Ensure that any observations and concerns about inaccurate or incomplete information provided by the tenderers will be highlighted explicitly to the Tender Evaluation Committee; and

(iv) Engage a Civil Service College trainer to conduct courses on a quarterly basis to better equip the staff with knowledge and skills to handle procurements.

MTI – Lapses in Procurement of Services to Administer an Award

27 The Committee noted procurement lapses in a limited tender called by SPRING to procure services for administering an award (contract value of $750,000). According to SPRING, the vendor involved in this tender was a partner with SPRING and other agencies in organising the award. SPRING explained that on hindsight, there should have been a clearer demarcation of work done by the vendor as a partner versus a service provider. SPRING also explained that price assessment was conducted and agreed that the price assessment should have been properly documented.

28 The Committee asked MTI:

(i) What was the role of the vendor in administering this award?

(ii) Was SPRING charged for services provided by the vendor based on cost or cost plus mark-up? If it was not based on cost, how did SPRING ensure that the price it paid was reasonable?

(iii) How did SPRING procure services for this event since 2011? Does SPRING intend to call an open tender for procurement of services for this event in future?

29 MTI informed the Committee that the vendor was appointed to manage the inaugural 2011 award cycle, where the work scope included award conceptualisation, pre-event and post-event publicity activities, calls for nomination, award assessments and evaluation, secretariat support, and execution of the award ceremony.

30 MTI explained that the price quoted by the vendor included a management fee and cost of items to be supplied by third-party providers such as venue for award dinner, media and publicity. The key cost items were deliberated by the other Government agencies involved in organising the award and the reasonableness of the prices charged was assessed based on the Government agencies’ experience with similar work done for other awards they had organised.

31 According to MTI, the award management for the subsequent award cycles was decentralised, with each Government agency involved undertaking specific roles. An

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open Invitation to Quote and an open tender were called in the 2013 and the 2015 award cycle, respectively, for the different services required.

MOF – Irregularities in Management of Variation Works

32 The Committee was concerned that the variation works of three projects undertaken by the National Heritage Board (NHB) had resulted in increases in project costs which exceeded the approved original procurement values by as much as 173 per cent.

33 The Committee noted that the Instruction Manual (IM) on procurement used to specify that agencies should invite a fresh tender if the variation works exceeded a certain percentage of the approved original procurement value. However, the percentage had since been removed from the IM on procurement.

34 The Committee was concerned that without specifying the percentage of variation works beyond which a fresh tender has to be called, agencies are allowed to raise contract variations which may substantially exceed the approved original procurement values. As the original works were awarded through open competition while the variation works were not, the integrity of the original tender may be compromised if the scope of work is changed substantially. There is also no assurance that the agencies have obtained value for money for the variation works.

35 The Committee asked MOF how it would ensure that the agencies would consider the need for contract variations judiciously.

36 MOF explained that the current IM on procurement does not specify a particular threshold beyond which fresh tenders must be called as there are complex and multi- dimensional considerations in determining whether a contract variation is justifiable. Setting a threshold may drive agencies towards calling contract variations as long as it is within the threshold and not considering calling fresh tenders, even when it may be more appropriate to do so.

37 MOF also mentioned that it has recently enhanced the guidelines to advise agencies, which are contemplating the use of contract variations, to consider factors such as whether the additional works are an extension of existing scope of work or within the boundary stipulated in the contract, as well as the cost and urgency of the additional works. Where additional works are necessary, and especially if the additional works are substantial, calling fresh tenders remains the default option.

38 Furthermore, MOF has included a Good Practice Guide in the IM to advise agencies to provide approving authorities with previously approved contract variations so that they can take a more holistic view when assessing the approval of contract variations.

39 MOF was of the view that good upfront planning and project management can help reduce the likelihood of requiring subsequent additional works. In this regard, MOF has been taking steps to help agencies perform their roles better.

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40 The Committee noted the responses of MOH, MTI and MOF. The Committee would like to emphasise that public sector agencies should always pay attention to procurement of goods and services as they involve significant commitment of financial resources every year. Besides reviewing the procurement process regularly, it is also important for public sector agencies to instil a culture for good procurement practices and for management to set the right tone at the top.

Other Lapses

MND – Creating and Backdating of Documents Furnished for Audit

41 The Committee noted with concern the creation and backdating of documents furnished to AGO by an officer, during AGO’s audit of the project for the development of the Gardens by the Bay (the Gardens) undertaken by the National Parks Board (NParks).

42 MND informed the Committee that the company, Gardens by the Bay (GB), which manages the Gardens, had taken the necessary disciplinary actions against the officer (presently its staff) for the misconduct.

43 MND also informed the Committee that NParks and GB would tighten their internal procurement, project management and contract management processes to prevent future recurrence.

44 The Committee noted the reply from MND. The Committee takes a very serious view of such acts of creating and backdating documents to furnish to auditors which undermine the work of AGO.

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Appendix I

MINUTES OF PROCEEDINGS

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10th Meeting ______

Tuesday, 26th August 2014

10.00 a.m. ______

PRESENT:

Mr Cedric Foo Chee Keng (in the Chair) Mr Ang Hin Kee Ms Foo Mee Har Mr Gan Thiam Poh Dr Teo Ho Pin Mr Zaqy Mohamad

ABSENT:

Mr Christopher de Souza Ms Jessica Tan Soon Neo

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1. The Committee considered the Report of the Auditor-General for the Financial Year 2013/14 (Paper Cmd. 6 of 2014).

2. The Committee deliberated.

3. The Committee examined findings contained in the Auditor-General’s report and agreed to write to the Ministry of Defence, Ministry of Finance, Ministry of Health, Ministry of Manpower, Ministry of National Development and Ministry of Trade and Industry to submit memoranda on matters raised.

Adjourned to a date to be fixed.

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11th Meeting ______

Tuesday, 25th November 2014

10.00 a.m. ______

PRESENT:

Mr Cedric Foo Chee Keng (in the Chair) Mr Ang Hin Kee Mr Christopher de Souza Ms Jessica Tan Soon Neo Dr Teo Ho Pin Mr Zaqy Mohamad

ABSENT:

Ms Foo Mee Har Mr Gan Thiam Poh

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1. The Committee considered the memoranda received from Ministry of Defence, Ministry of Finance, Ministry of Health, Ministry of Manpower, Ministry of National Development and Ministry of Trade and Industry.

2. The Committee deliberated and considered the Chairman’s draft report.

3. The Committee agreed to write to the Ministry of Finance and Ministry of Manpower to submit further memorandum on matters raised.

Adjourned to a date to be fixed.

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12th Meeting ______

Tuesday, 27th January 2015

10.00 a.m. ______

PRESENT:

Mr Cedric Foo Chee Keng (in the Chair) Mr Ang Hin Kee Mr Gan Thiam Poh Ms Foo Mee Har Dr Teo Ho Pin Mr Zaqy Mohamad

ABSENT:

Mr Christopher de Souza Ms Jessica Tan Soon Neo

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1. The Committee considered the memoranda received from Ministry of Finance and Ministry of Manpower.

2. The Committee further deliberated.

Report

3. The Chairman’s report brought up and read the first time.

4. Resolved, “That the Chairman’s report be read a second time paragraph by paragraph.”.

5. Paragraphs 1 to 44 inclusive read and agreed to.

6. Resolved, “That this report be the report of the Committee to Parliament.”

7. Agreed that the Chairman do present the Report to Parliament when copies are available for distribution to Members of Parliament.

Adjourned sine die.

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