AGO report highlights significant lapses in MHA’s inventory management

The Auditor-General’s Office (AGO) has released its audit report for the financial year 2023/24, covering the accounts of all 16 ministries and eight organs of state.

The comprehensive audit also included three government funds, eight statutory boards, four government-owned companies, and two other accounts. Among the significant findings, the Ministry of Home Affairs (MHA) was highlighted for weaknesses in inventory and records management at all vendor-managed locations.

Audit of MHA’s Logistics Services Contract

The AGO audited MHA’s management of a $783.83 million contract for logistics services, including warehouse management, over 10 years with a four-year optional extension.

The audit involved surprise stocktakes at three locations: two for Singapore Civil Defence Force (SCDF) equipment and one for Singapore Police Force (SPF) equipment.

The SCDF equipment included medical supplies and disaster recovery gear, while the SPF equipment comprised helmets, vests, and gas masks.

The audit revealed critical weaknesses in inventory and records management at all three vendor-managed locations.

SCDF Equipment Management

The audit found that the vendor responsible for SCDF’s inventory also maintained the inventory balance records and held custody of the physical inventory. While SCDF had daily, weekly, and monthly checks in place, the AGO noted deficiencies in these checks.

SCDF allowed the vendor to select samples for daily checks and only reviewed items with movement during the week for weekly checks, neglecting items with no movement. This approach risked missing unauthorized adjustments to inventory records by the vendor.

Discrepancies were discovered between the vendor’s inventory records and the actual physical inventory. In one instance, SCDF inventory was misplaced within the vendor’s warehouse, and in another, non-SCDF items were found in SCDF-designated areas. Additional discrepancies involving smaller quantities indicated errors or omissions in the vendor’s records.

SPF Equipment Management

For SPF, the inventory records in MHA’s new logistics management system showed discrepancies for 13 out of 20 items checked. The discrepancies were attributed to misplaced items later found and errors from past legacy migration issues or incorrect transaction updates. Further checks revealed that annual stocktakes from 2020 to 2023 did not match the inventory movement records for 11 out of the 13 items, with significant variations in quantity from year to year. These findings indicated that SPF’s inventory was not properly managed or accounted for.

MHA’s Response and Improvements

MHA acknowledged the AGO’s observations and has taken immediate steps to improve inventory management.

SCDF has enhanced its checks over physical inventory and records, requested access to the vendor’s records for surprise checks, and ensured that checks are endorsed and documented by SCDF personnel. These measures aim to mitigate risks associated with vendor-managed inventory.

SPF has investigated the discrepancies and concluded that they were due to recording errors, confirming no loss of inventory items. SPF has committed to improving storekeeping management and re-organizing its store by July 2024.

Additionally, SPF will work with its line units to complete data cleansing of its inventory records in the logistics management system by the same deadline.

Errors in Performance Bonus Incentive (PBI) Payments

AGO’s test checks on PBI payments made to the vendor under the same contract noted errors in PBI computations, resulting in overpayments totaling $151,900 and underpayments totaling $84,300 for the period January 2020 to September 2023.

Under the contract, the vendor’s performance was measured quarterly based on specific performance indicators, with the PBI computed based on the total value of relevant services rendered and the vendor’s performance.

MHA explained that the incorrect computations were due to oversight. The overpayments occurred because certain cost components were not removed during PBI computations, and duplicate purchase order (PO) amounts were wrongly included while the underpayments arose from the erroneous exclusion of additional services awarded via contract variations from PBI computations.

MHA has since corrected the computations and will offset the net overpayment from the next PBI payout to the vendor. MHA will also apply the correct computation method, exercise scrutiny where there are changes in services provided, and ensure proper checks on the PO listings and amounts to prevent recurrence.