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.

L.A.M.

Link to file: https://onedrive.live.com/redir?resid=CF7F78C43CE14ADC!3937&authkey=!ADt3Y_jYG-s2QPc&ithint=file%2cxlsx

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The Day The Father of Accounting Rolled in His Grave

Not many people will know who Luca Pacioli is. Luca Pacioli is the Father of accounting and bookkeeping. He is the accounting equivalent of Albert Einstein to the Theory of General Relativity and Tony Hawk to skateboarding and at 9:48am (SGT) yesterday, he rolled in his grave.

The reason for this was because two members of parliament (names and identity removed to protect them) could not tell the difference between a balance sheet item and an income and expense item. And worst of all, they had the audacity to add an asset (a balance sheet item) to a deficit (an income and expense item) and claimed that it turned a deficit into a surplus!

Pictorial evidence below:


 

Names and photos redacted to protect their identities and to prevent personal attacks against these MPs

To summarise MP #2, he said that although there was a deficit of $282,009 (accumulated deficit as of 30 April 2013), there was a $303,372 receivable from CCC. So adding the 2 together, would result in a net surplus of $21,363 (see below).

For those not trained in accounting, a receivable is an asset. It is not a form of income but is a balance sheet item. 

Sounds confusing? Let me give you an example:

If you own a house, that is an asset and is therefore a balance sheet item. 

If you have $50 in your bank, that is cash and is an asset and is therefore a balance sheet item. 

If you performed a service for somebody and the person writes you an IOU, the IOU is "technically" a receivable for cash at a later stage but you would have recorded the transaction as an income in the income statement at the time of the sale.This IOU is an asset. 

However, you CANNOT add it to your income statement because at the time of the transaction (when the IOU was issued to you), you would have recorded that transaction as an income in your income statement. 

So technically, if you add the asset to your income statement, you would be double counting, but you can't do that in the first place because it's ridiculous to add an asset to a deficit and I will explain why below:

Let's say that this year the following happened:

1) You had income of $1
2) You had expenses of $3

3) You own a house that is worth $7

What is your deficit/surplus for the year?

Your deficit/surplus would be 

= income - expense 

= $1 - $3 

= -$2

However, what the 2 MPs did would be equivalent to adding the $7 value of the house to the deficit and claiming that they made a surplus of $5 for that year!

In conclusion, in our Parliament, it appears that basic accounting skills are very lacking. On the one hand, we have the AHPETC issue which shows signs of bad book-keeping since no auditor was willing to give an unqualified opinion. 

On the other hand on the opposing side, we have MPs confusing balance sheet items and income and expense items and adding and subtracting them together.

Either way, both sides have demonstrated a startling lack of accounting knowledge and discipline.

L.A.M.

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Still confused? Let me give you another example:

Let's say you performed a service for somebody and that person paid you USD100 worth of gold. Let's say the gold is 1kg (although this is not important).

At the time when you performed the service, you would have recorded the transaction as income of $100 (even though you received gold and not cash).

So in your income statement you would have earned $100 from this transaction. 

5 days later, you sold this gold to the goldsmith for USD $100 cash.

Do you then go and record this $100 as an income in your income and expense line?

If you did, you would have $200 of income but the only thing you did was a $100 service. This completely doesn't make any sense, how did this one service become a $200 income? That is because you treated an asset worth $100 (the gold) as income.

Replace the gold with accounts receivables and the logic stays the same.

On Which Town Council Was Managed the Most Wisely

  

So, after yesterday's post on Why the Opposition Party Needs to Sell Stuff to Raise Money but Not the PAP? Someone asked me to give my 2 cents worth on whether AHPETC was mismanaged. Although I have read quite extensive from both sides of the issue. I was not satisfied with just depending on the numbers and opinions provided by other people. I needed to see the numbers for myself.

As such I went to download the 2013/1014 Annual Reports from all 16 Town Councils and poured through all the income and expenditure statements.Reading annual reports might be confusing for the average person, but I hope that my analysis below will shed light on the question of, Which Town Council Was Managed the Most Wisely in 2013 and 2014

The typical Income and Expenditure Statement looks like this (yes it's boring I know). It shows the income and expenditure for the year for the Town Council.

For the purpose of today's analysis. We will be focusing on 4 lines

1) Conservancy & Service Fees

2) Total Operating Expenditure

3) Government Grants

4) Operating Deficit

The Conservancy & Service Fees is one of the income streams of the Town Council. It is made up of S&C Fees collected during the year from the residents of the Town. It also makes up the bulk of the income for each Town Council.

The Operating Expenditure is the expense incurred by the Town Council to run a town. It comprises cleaning works, managing agent's fees, lift maintenance and all the operational expenses required to run a Town.

The Operating Deficit is the loss made by the Town Council from running a town. It is the Operating Income subtracted by the Operating Expenditure. Interestingly, all Town Councils incur an Operating Deficit before receiving Government Grants.

The Government Grants are grants provided by MND:

The Town Council receives three types of grants from Government, 

1) Service and conservancy charge grant (to meet the current year's operating expenditures)

2) Payments from citizens’ consultative committees and 

3) GST subvention grant. (granted to Town Councils to assist them to absorb the GST increases in Service and Conservancy Charge for HDB residential flats.)

So, I have collated all these numbers and to allow me to compare between Town Councils (who are of different sizes), I have divided them by the electorates in each Town. (I have not managed to find numbers on the number of residents in each Town and have used the number of electorates in each Town as a proxy for the size of the town)

This creates 4 main analysis below:

The first analysis is the Conservancy and Services Fees per electorate. This allows us to examine the "tax burden" placed on each person in the Town Council. In general, the higher the number, the more the average person is taxed on conservancy and services fees.

For both years, the "cheapest" town is East Coast Town Council, which is made up of East Coast GRC and Joo Chiat SMC. In 2013, AHPETC was the second "cheapest" town and it was ranked 11th most expensive (out of 15 Town Councils) in 2014. In this sense, AHPETC has a lower than average "tax burden" on residents among Town Councils.

The second analysis is the Operating Expense per electorate. This allows us to examine the the operational expenses incurred by each Town Council per electorate. In general, the higher the number, the more "spendthrift" the Town Council has been in each Town

For both years, the most spendthrift town is Pasir Ris-Punggol Town Council, which is made up of Pasir Ris-Punggol GRC. In 2013, AHPETC was the second most penny pinching town and it was ranked 10th in spending per electorate in 2014. In this sense, AHPETC was more prudent in it's expenditure than the average Town Council.

The third analysis is the Government Grants per electorate. This allows us to examine much Government Support there is per electorate. 

The Town Council which received the most "government support" in 2013 was Ang Moh Kio TC which comprises of Ang Moh Kio GRC and Seng Kang West SMC, while AHPETC placed last. 

In 2014, The top place went to Tanjong Pagar TC which comprises of Tanjong Pagar GRC and Radin Mas SMC. AHPETC was placed 13th.In this sense, AHPETC has received less support from the government per electorate than most Town Councils.

The fourth analysis is the Operating Deficit per electorate. This allows us to examine the level of deficit that is incurred by each Town Council per electorate. 

The Town Council which has the lowest operating deficit in both years is Choa Chu Kang TC, which consists of Choa Chu Kang GRC and Hong Kah North SMC.

In 2013, AHPETC was placed 10th. It incurred less deficit than 5 other TCs and is among the top 67th percentile in terms of deficit management. However, in 2014, AHPETC was placed last. There was a $9 increase deficit per voter from 2013 to 2014. 

However, it would be good to note that the $38 deficit per voter would only be the 4th worst performance in 2013, ahead of Moulmein-Kallang, Tanjong Pagar and Potong Pasir all of which who had substantially higher deficits. As such, although it is a big jump between 2013 and 2014, the fall in ranking to last place was also due to a huge improvement by other Town Councils during the same period.

There was also a 26% increase in operating expenditure in 2014 which requires further explanation from AHPETC.

In conclusion, AHPETC experienced marked increase in operating expenditure in 2014. However, AHPETC performs above the average Town Council in terms of tax burden and operating expenditure per electorate. Furthermore, AHPETC is among the bottom 20% or the lowest in terms of support from the Government through Government Grants.

To answer my question, the best managed Town Council (financially) goes to East Coast TC for both 2013 and 2014. In the words of East Coast GRC MP Lim Swee Say, ECTC is the "cheapest (in terms of Conservancy charges per electorate), betterest (among the lowest in deficit management) and fasterest (among the lowest in grant support, so their vendors can be paid off quickly without waiting for MND grants to come in)."

You can find the analysis in the link below:

https://onedrive.live.com/redir?resid=CF7F78C43CE14ADC!3932&authkey=!AIFTcucOxQygt7E&ithint=file%2cxlsx

 

L.A.M.

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Did AHPETC inherit a deficit or a surplus from Punggol East SMC? If you are confused about it, read this:

The Day The Father of Accounting Rolled in His Grave.

Additional Notes:

So after I have written this post, there were a lot of questions and comments, I will try to answer as many of them as I can, but do note that I am not a full time blogger or MP and I have a busy day job, so if I can't answer any of them in time or have missed some of them, I apologize.

One of the questions was posed by Wen Zheng:

First, let me try to explain what is a CIPC grant. From Minister of National Development (MP Lim Swee Say), I quote

“The Community Improvement Projects Committee (CIPC) provides funding support for infrastructural and recreational facilities, including general amenities for the benefit of residents in the whole constituency. Such facilities include covered walkways, footpaths, cycling tracks and playgrounds.

“CIPC funds are disbursed through the Citizens’ Consultative Committees (CCCs) as they are close to the ground and will be better able to decide on the projects which will be most useful for the local residents. We give the CCCs flexibility to assess the relevance of any proposal and to prioritise them for implementation so that the CIPC funds are optimally utilised. The operating principle for the CCCs is to ensure that the approved CIPC projects are useful, functional, represent value for money, freely accessible to the community and properly planned.

“Town Councils may approach their respective CCCs if they have other queries.” [Source]

So this CIPC grant is disbursed by the CCC. In the Annual Report it is located in the Notes to the Financial Statements under the Other receivables, deposits and prepayments section. (Below is an excerpt of the line from West Coast Annual Report 2013/2014)

However, CIPC grants have no bearing on the bottom line (Surplus for the financial year line) since it is transferred to the Town Improvement and Project fund and is less off from the government grants received during the year when used to calculate the surplus for the financial year.

As such to answer Wen Zheng's question, there is no direct impact on a TC's surplus/deficit for the financial year due to the CCC grant since it is transferred to the Town Improvement and Project Fund. However, we need to investigate further to see if the Town Improvement and Project Fund has any impact on the financials through other line items.

*However, it is still surprising that AHPETC does not receive any CCC Reimbursment in 2013, 2014 or 2015. (I am still investigating the impact of the Town Improvement and Project Fund

Furthermore, ALL of the Town Councils will be in deficit without any government grant, which in 2015, a portion of which was withheld from AHPETC.