Wednesday, September 9, 2015

On Whether AHPETC Overpaid it's Managing Agent?

Previously, I wrote about which Town Council was managed the most wisely, and I made comparison across a range of ratios. However, there was one pertinent question that I did not answer and that question is whether AHPETC overpaid it's managing agent.

To answer this question, I had to hit the Annual Reports again to examine whether AHPETC overpaid it's managing agent, I relied on 2 key figures from the Income and Expense Statement as well as Electorate numbers to generate 2 different analysis.

The 2 key figures from the Income and Expense Statement were:

1) Managing Agent Fees (duh!)
2) Total Operating Expenses

They are located in the Operating Expenditure part of the Income and Expense Statement (sample from Moulmein Kallang Annual Report 2013/2014 below)

As explained earlier, I did 2 analysis

1) Proportion of Managing Agent Fees to Total Operating Expenses (MA/OE)

I divided the Managing Agent (MA) Fees against Total Operating Expenses to see the proportion of total operating expenses that are taken up by MA Fees. If AHPETC had a larger proportion than other TCs, this could be a sign that it is overpaying it's MA.

2) MA Fees per electorate

I have used electorate numbers as a denominator to compare the performance between Town Councils which have different sizes and number of residents. (Ideally, I would prefer to use the number of residents/residential units in the estate as a denominator, however, in the absence of such data, I will use the electorate numbers as a proxy and pray to the god of large numbers that any discrepancies will be wiped clean.)

Based on the analysis I have done, 

On per voter basis, AHPETC was ranked 6th and 10th place in 2014 and 2013 respectively. On the surface this means that their spending on Managing Agent fees are pretty much in line with other town councils. The worst performers based on this matrix are Pasir Ris-Punggol and Bishan-Toa Payoh.

However, one thing that is worth nothing is that AHPETC's Managing Agent's Fees were a significantly large proportion of their overall Operating Expense at 15.2% and 15.0% for 2014 and 2013 respectively. 

If I were to average MA/OE numbers from all the other TCs, we can see that AHPETC is 2.4% to 3.6% higher than the other TCs (depending on whether we exclude BTTC or not). This in itself is rather strange. Based on this matrix, either AHPETC is over-paying it's MA or it's MA is so efficient that all other costs comes down significantly.

Another interesting thing to note is that the worst performer based on this matrix is Bishan-Toa Payoh, who is the only TC who have employees on it's payroll instead of Managing Agents. This is very interesting because on Feb 13, 2014 Hri Kumar said the following in parliament.

Based on the metrics above, Bishan-Toa Payoh may be coping just fine, but there is a potential to reduce costs if they were to outsource the task of Town Management to a Managing Agent instead of relying on internal staff. They could then rely on the economies of scale of the Managing Agent to perform Town Council works for them and hopefully pass on these savings to the residents of Bishan-Toa Payoh.

In conclusion:

I performed 2 analysis on AHPETC's Managing Agent's Fees. In 1 of them, they were in line with other TCs. In the other one, it was the 2nd worst performer in both years. Based on the analysis, I cannot immediately conclude that AHPETC did not overpay it's Managing Agent. This is something that needs to be explored further. 

Furthermore, we concluded that Bishan-Toa Payoh might be better off (at least financially), if it outsources Town Council works to a Managing Agent.


Link to file:!3937&authkey=!ADt3Y_jYG-s2QPc&ithint=file%2cxlsx

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