Manage estates, not investments

Friday • December 7, 2007

Letter from KARMA TSULTRIM WANGCHUK

I refer to "Move to protect council funds" (Dec 1). It is noteworthy that rules on the investment of Town Council funds have been tightened for the sake of risk management. However, we should not be distracted from what I consider to be the priority issue that has not been really addressed in recent reports and comments regarding this matter.

First, let's examine what we expect the role of Town Councils to be and not to be. In my view, Town Councils have only one primary role: As estate managers, that is, to upkeep the HDB estates under their charge in acceptable livable conditions. To fund such activities, they charge and collect monthly fees from residents to defray recurring and seasonal costs, as well as to set aside a sinking fund to cover cyclical costs which recur every few years.

With many years of experience, Town Councils are by now quite capable of budgeting fairly accurately for the short- and long-term and the sourcing of funds including Government grants and the capital levy imposed on residents for any one-off upgrading.

Granted, monthly conservancy charges should be levied on residents to balance the budget, leaving at most a reasonable reserve for contingency purposes.

It is not the business of estate managers to collect charges from residents and then engage in financial investment activities, which are not within their area of expertise. Also, residents are not shareholders of Town Councils and I believe therefore, they do not have any legal right or direct access to the excess funds or earnings from these. And yet they are the major providers of these funds and bear the risk if the sinking funds are invested badly. If investments result in a net loss, the residents will most likely be asked to top up.

Two things should be done for the sake of the public's interest.

First, if a substantial portion of the funds held by Town Councils is indeed excess funds, Town Councils should lower their monthly conservancy charges sufficiently so that the excess can run down over time. With the rising cost of living, this is the right way to reverse over-charges, if any, and ease the cash-flow of the heartlanders.

Second, the Government should immediately call for an audit on the management of these funds (and share the findings publicly), so as to address the following issues:

• The adequacy of the risk management processes for proper control.

• The existing investments should be marked to market and the profit and losses of previously-held investments determined. Only then will the public have a complete picture of the time performance of the investments.

• Review investment limits and policies with a view to confine investments only to Government-issued and "Triple A" instruments. Also, the centralisation of fund investment at Ministry level should seriously be considered. This will facilitate the pooling of investment expertise, control and provide economies of scale so as to minimise administrative and risk management costs.

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