Rules and guidelines governing finance and procurement processes in the public sector

Date: 22 November 2010

Parliamentary Question for Oral Answer:

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

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.

Assoc Prof Fatimah Lateef asked the Minister for Finance (i) 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 (ii) whether there are clear pathways or channels for whistle-blowing.

Reply by Finance Minister Tharman Shanmugaratnam:

1. Mdm Halimah Yacob and Mr Low Thia Kiang asked if the alleged fraud at SLA exposed gaps in the rules and guidelines governing finance and procurement processes in the public sector.

2. The recent cases at SLA and IPOS did not come about because of gaps in public sector procurement rules and guidelines. 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 concerned. The SLA and IPOS cases instead occurred because individuals, allegedly, colluded to get around the required checks and balances to cheat the system.

3. 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, MinLaw has acted to rectify shortcomings in supervision and audit. Disciplinary action has also been taken against the officers who had not discharged their supervisory responsibilities adequately.

Setting appropriate rules and safeguards

4. 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, which applies to lower value transactions (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 about 95% of annual public sector procurement value.)

5. 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 spotted in the recent case.

6. 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.

Effective supervision

7. 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 that we do not add layers of bureaucracy to perform more checks and balances. We should do what we practically can to reduce the risk of fraud, but keep Government lean, efficient and responsive.

8. 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.

Robust audit

9. 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.

10. 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 evaluation of internal controls. In addition, therefore, the AGO periodically audits statutory boards in selected areas of internal controls, compliance with regulations and avoidance of waste. Each year, the AGO carries out such audits of all 15 ministries in Government, all 9 organs of state and around 18 other entities which are mainly statutory boards. The AGO last audited the SLA in FY2007/08. It began its audit of IPOS in December last year, before the recent case of alleged fraud surfaced.

11. The AGO 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 AGO will re-prioritise the areas being selected for audit in its next audit cycle to give greater attention to IT services procurement and contracts. However, these external audits performed by AGO serve as an extra layer of check, and are not a substitute for the statutory boards' internal audit responsibilities.

12. 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 how the alleged fraud at IPOS was uncovered.

Whistle-blowing

13. 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 department, 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.

14. 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.

15. In sum, 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.