Monday, July 20, 2009

AG Report - MDA Conflicts of Interest & Financial Mismanagement

Media reprint

MDA backed mentors' stakes in start-ups

By Nur Dianah Suhaimi
July 19, 2009

It was no secret.

The Media Development Authority (MDA) was fully aware several of the mentors it appointed to recommend interactive and digital media start-ups for funding held stakes in the companies they rooted for.

The mentors had declared their stakes before funding was approved. In fact, MDA not only approved the funding, but it also viewed the mentors' stakes in the companies favourably.
MDA revealed this when asked to comment on the Auditor-General's (AG) report released last week, which faulted the way MDA handled the Microfunding Scheme.

The scheme allows MDA to disburse $40 million to start-ups in the interactive digital media (IDM) sector over five years, as part of the Government's drive to boost the industry. Each approved start-up can get up to $50,000 each.

The AG report noted how four start-ups which got grants were founded and co-owned by their mentors. There was also a conflict of interest in the evaluation of applications for funding.

In 10 approved cases, one of the three experts appointed by MDA to evaluate the applications was either a shareholder of the company he evaluated or a business partner of the mentor.

Responding to the report, Mr Michael Yap, the agency's executive director for the IDM research and development programme office, said MDA's efforts over the last two to three years have focused on encouraging experimentation and supporting young start-ups and entrepreneurs in their innovations.

'Critical to their success is matching them with more experienced incubators, that is mentors, who can value-add, provide networks and advice on their growth,' he said.

'This being a young industry, the pool of incubators is small and it is common for incubators to have ownership in start-ups. This can help further the growth of the industry as it gives them a stake in the success of the IDM ventures.'

On the four start-ups in question, 'the incubators had fully declared their involvement with the start-ups during the application process', he said. 'Their applications were approved on their own merits and the participation of the incubators was viewed as positive.'

MDA said it will be strengthening its application procedures and will also require the evaluation panel members, who are volunteers, to declare their independence.

The Microfunding Scheme is expected to benefit some 750 to 1,000 projects over the next five years. So far, 200 start-ups have received funding from MDA. The mentors, or incubators as they are referred to, get $10,000 for each project for providing services such as mentoring, legal guidance and matchmaking with venture capitalists.

According to the scheme's website, there are nine mentors, including NUS Enterprise and Singapore Infocomm Technology Federation.

These mentoring companies are usually represented by their heads.

Lapses by MDA filled nine pages in the 40-page AG report. Other salient lapses included overcollecting $6.06 million in radio and TV licence fees from some 684,000 households since 2005. The money has yet to be refunded.

It did not collect $844,600 in licence fees from a broadcaster and almost $10 million of sales revenue from films it co-invested in.

MP Zaqy Mohamad, Government Parliamentary Committee (GPC) chairman for Information, Communications and the Arts, declined to comment on the matter as he was part of the Public Accounts Committee.

The committee, comprising eight MPs, pores over financial statements of government agencies and the AG's annual report, and seeks written explanations from agencies concerned.

The GPC's vice-chairman, Mr Baey Yam Keng, said the approval process in the Microfunding Scheme should be fine-tuned such that mentors are not put in the position that they are able to recommend their own interests.

However, he does not think the funds which have been disbursed to the four start-ups should be returned.

'Ultimately, the whole purpose of the scheme is to look out for good start-ups. So if the companies are really deserving of funding, then it's fine,' he said.

On MDA's failure to collect $10 million in revenue from the films it invested in, Mr Baey said MDA has probably not fine-tuned this process as the programme started only some years back. He was less forgiving on the agency's overcollection of some $6 million in radio and TV licence fees.

He said: 'MDA has been collecting licence fees for many years. There is no reason why the system is not robust enough to prevent this from happening. By now, there should not be any problems with this simple task.

'MDA should really look into how it can close the gaps.'

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