12 January 2013

The PAP Clown Council procedural show

Like experts on corporate governance who weighed in officially on the issue after Minilee's decree for an investigation into the clown council by the Ministry of National Development gave them the much-needed spine, we at Illusio are convinced that there is a pressing and obvious question of conflict of interests, non-transparency, and inappropriate procedures surrounding Teo Ho Pin's sale, as 'coordinating chairman', of municipal-level management software of 14 town councils to Action Information Management Pte Ltd.

In our last post, we established that very strictly speaking, the questions of conflict of interests, non-transparency, and inappropriate procedures do not lie on Chandra Das and the other directors of AIM. In addition, we proposed that the conflict of interests involved in this case are not legally actionable but fall under the wider issue of the ethics of corporate governance and also, appropriate procedures and full disclosure.

From the point of view of process auditing, at the very minimum, these two questions should be asked in any subsequent investigation by any appointed authorities and regulators as an automatic trigger for the conflict of interests issues surrounding the town council sale.

1. Was the conflict of interest disclosed by AIM to the town council during the bidding process? Note this is despite the fact that legally speaking, AIM Is not legally bound to disclose its PAP-ownership to the public via its accounts or company statements. Legal requirements are not the same as auditing or corporate governance requirements.

2. Was the conflict of interest disclosed by the town councils in their annual reports submitted to the Ministry of National Development and the Auditor-General of Singapore?

In many cases of conflicts of interest that are non-actionable by law, the issue is of an issuer and issuee who are affiliated entering a contract. That is to say, the issuer or issuer are not shareholders, directors, or employees of each other but possess other corporate, social, political, or personal affiliations. For example, both parties could be separate subsidiaries of the same conglomerate, or have known each other for 20 years as members of the local Toastmasters, or are related by marriage or blood.

Yes, it's not legally actionable. But no, that doesn't mean the conflict of interest doesn't exist. What it means is you're supposed to, for the sake of your auditors and the regulatory body, declare this conflict of interests during the process as well as the audit, to say, "Yes, we are both affiliated but the contract was awarded due to the bidder's superior offer, track record, etc." Failure to do so? Not illegal per se but just plain ugly.

Unlike certain conspiracy theories, we therefore do not predict that the MND investigation will lay the blame on the auditors; they simply didn't know and wouldn't know there's a conflict of interest since AIM's political ownership structure is still legally non-transparent and an object of speculation, even ours.

Next, the regulators or investigators will need to consider the following:

3. Was the contract one which was economically, financially, operationally justifiable? Was AIM's PAP affiliation a necessary and sufficient factor for its winning the contract?

It stands that if there are no takers for the contract Teo Ho Pin offered, then from the market point of view, the work entailed in the contract for the sum offered did not make financial, operational, or economic sense. Note that The New Paper has canvassed procurement and software experts who have said just as much.

Now, we consider Teo Ho Pin's statement on 2 January 2013. We note his statement that having considered AIM's sole bid to indicate that the town council offer was reasonable and made market sense, "...we were confident that AIM, backed by the PAP, would honour its commitments."

We suggest that if procurement and software experts may still be found to testify to the Ministry of National Development's investigation (and that the MND would field the question in the first place) that the town councils' contract was not one that any profit-making software company would enter into, then it might follow that AIM was mistakenly awarded the contract by Teo Ho Pin purely out of the fact that he knew it was PAP-backed. If the contract is not economically or financially justifiable, then it is impossible to win it on any merits.

Next. Depending on the investigator, a case might even be made that AIM accrued political benefits from its affiliation in this contract.

4. When and how did Teo Ho Pin know about the PAP affiliation of AIM?

As noted by too many other commentators, there is no publicly available information to corroborate Teo's assertion that AIM is "PAP-backed" or Chandra Das's claim that AIM is PAP-owned.

We at Illusio look forward to the Ministry of National Development to investigate just when and how Dr Teo knew about AIM's nature. It could very well turn out that not only did Teo mistakenly award the town council contract to AIM solely because of its PAP affiliation but also that he made the decision while being privy to its secret ownership. This would be properly speaking, a prime example of improper procedure in corporate governance where the issuee awards the contract for reasons only available to the issuee and not the general public, not even the regulatory body.

Now if our previously-mentioned investigator has taken to inquire if AIM had accrued political benefits from its affiliation, backing, or ownership by the PAP, this investigator may well be swayed by the fact that Dr Teo, being a PAP member having very specialised and restricted knowledge of AIM's affiliation with the PAP, did not in fact declare this to the town council and excuse himself from the awarding of the contract - but instead used it as a prime reason for awarding the contract when the tender should have been called off.

5. So will the investigation by the Ministry of National Development investigate where the money AIM earns from these town council contracts end up? Is this line of inquiry mandated by Minilee's assumption of the investigation committee?

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