Corporate governance don't mean squat if flouted

The joke goes that, "it's only wrong if you're caught", so cheating in class or smoking on school grounds is only against the rules if the teacher catches you.

But, while breaking the rules may not always result in dire consequences, not adhering to critical business rules can mean serious implications.

Several pockets of the Singapore government this week are probably sitting red-faced after they were caught flouting, what I would consider, pretty basic policies and guidelines.

In its review of how public monies and resources were utilized, the Auditor-General Office (AGO) reported serious lapses that cut across various ministries and government agencies. Offending offices included the Ministry of Defense, Ministry of Foreign Affairs, Prime Minister's Office, and very ironically, the country's tax collector Inland Revenue Authority of Singapore (IRAS).

The Auditor-General identified a series of oversights that were mainly the result of less-than-stringent management of contracts and procurement, and a lack of rigor in how appointed personnels examined proposals.

The Institute of Technical Education (ITE), for instance, implemented a document management system in 2007 for S$1.39 million, citing the need to provide a "consolidated central directory...to enable all staff to harness collective knowledge in ITE". Two years after the deployment, the AGO noted that only 28 percent of targeted users were actually using the system.

The IRAS was rapped for noted "weaknesses" in processing performance bonuses, which resulted in both overpayment and underpayment.

More worryingly, because the agency regulates an industry that ZDNet Asia covers, the Media Development Authority (MDA) committed several serious oversights that could very easily be misinterpreted as corruption--something that the Singapore government has always stood firmly against.

Among a laundry list of errors the MDA committed, two included allowing a broadcaster to renew its licenses even though it failed to comply with a stipulated condition, and not imposing penalty totaling S$308,220 for a provider's underperformance in an outsourcing agreement.

A series of lapses in the MDA's administration of one specific initiative is worth noting. In 2007, the agency pledged to distribute S$40 million over a five-year period to help grow the local interactive and digital media (IDM) sector. Dubbed the Microfunding Scheme, the initiative allows IDM startups to receive grants of up to S$50,000 each.

Applications for such funds are reviewed and recommended by MDA-elected "mentors", whose recommendations must then be evaluated and supported by three "experts". Guidelines stipulated for the Microfunding Scheme prohibit funds to be distributed to startups that are set up and owned by the elected mentors, and the experts involved in the evaluation cannot be business partners of the mentors.

In its audit, the AGO identified four startups, which had received funds, were actually founded and co-owned by their mentors. In addition, one startup that was approved to receive the grant was evaluated by an expert who was a shareholder, while an expert involved in the evaluation of nine other startups was a business partner of the mentor who recommended the startups.

In all, grants dished out under the Microfunding Scheme to the cases singled out by the AGO totaled S$800,000.

These lapses are disappointing, to say the least, because anyone with a dose of common sense would have easily recognized the clear conflict of interest in all the highlighted cases.

It's also particularly disappointing because the Singapore government has put much effort and spent many years building the country's widely-recognized reputation as one that's firmly rooted in transparency and accountability.

If our experience with Enron, the Lehman Brothers and Satyam didn't teach us anything, at the very least, it highlights the need to establish strong corporate governance, and to monitor the adherence of crucial business policies and guidelines.

Singapore's government has always maintained the importance of staying free of corruption and it has done well to achieve this goal, ranking third in the world's index of least corrupted countries. But, it also needs to realize that oversights like those highlighted by the AGO, can tarnish its hard-earned reputation in a flash.

I have no doubt that the MDA established those guidelines to ensure the Microfunding Scheme will be administered with the greatest transparency and integrity, but all its well intentions will mean nothing if it fails to ensure these policies are strictly observed by all parties involved.

Any slip will be swiftly interpreted, albeit wrongly so, by Singapore's most-fervent of critics as a lack of accountability. And the government cannot afford to provide any opportunity, especially those that can be easily avoided with better governance, for such senseless nitpicking.

The good news, though, is that it sent out the auditors to uncover the loopholes and the ministries and agencies involved now know what they need to rectify.