Ministerial Statement on the National Kidney Foundation

20 Jul 2005

By Mr Khaw Boon Wan, Minister For Health

Venue: Parliament

Mr Speaker, Sir, the revelations in the High Court on July 11 and 12 by Mr T. T. Durai, then-CEO of the National Kidney Foundation (NKF), gripped the attention of Singaporeans and sparked widespread outrage. They eventually led to his resignation and the resignation of the entire Board of Directors.

The intensity of the public reaction is understandable. Many Singaporeans have donated to the NKF with good intentions of supporting the less fortunate who suffer from kidney, cancer and other diseases. The donors are naturally upset by the disclosures which seemed to suggest overly-generous staff compensation, improper spending, weak Board governance and misleading statements on fund reserves. They feel misled, betrayed and deceived.

While such emotions are understandable, we need, at the same time, to remain objective and not lose sight of the bigger picture. The NKF cause is a worthy one. There are real patients out there who have benefited from the work of the NKF and who continue to require care. I have visited the NKF dialysis centres before, and so have many Members of this House. We have spoken to the patients. They were sincerely grateful and happy with the work of the NKF in giving them a new lease of life.

I believe that Singaporeans know this and support the NKF's fundamental cause. That is why the NKF enjoys such widespread support, with more than half a million Singaporeans making donations to the NKF last year.

Continued Patient Care

Therefore, while it is important that we look into the issues which the court case has thrown up, we must not allow them to distract attention from the NKF's patients in need.

Our top priority must be to ensure that patient care and existing clinical services are not disrupted. The NKF runs 21 dialysis centres, serving 1,800 patients regularly. Professional standards and services must remain intact. Patients must continue to receive their medical treatments. They must continue to have access to their doctors and nurses, to dialysis machines, to medication and medical advice.

Equally important, we must not forget the staff of the NKF: the doctors, nurses, administrative and support staff. Their morale has taken a beating. They are a dedicated group, serving a cause which they believe in. They need the assurance that their work is appreciated, and that they can carry on delivering patient care without distraction or worries about their future. Despite a difficult week, they have rallied together to ensure that the work still gets done. They need our moral support.

Regaining Public Confidence

But NKF must acknowledge that public confidence has been shattered. For the NKF to continue its work, it must address this comprehensively.

I. Putting a New, Strong Board in Place

The immediate task is to put in place a new, strong Board to stabilise the situation. A few people have questioned my involvement, and by extension, the Government's involvement in this matter. They are concerned about the Government's intervention in the affairs of a voluntary organisation.

Mr Speaker, Sir, the NKF is indeed a private non-Governmental Voluntary Welfare Organisation (VWO). It was founded in 1969 and registered in 1984 under the Charities Act. It is not a Government-linked entity, nor is it run by the Government. It has its own governance framework to manage its organisational issues.

However, as public pressure built up last week, the NKF Board of Directors and its CEO came to see me on Thursday July 14. They asked for advice on how to respond to the crisis. They sought my help, presumably because patients' welfare was at stake, and their Institution of Public Character (IPC) status, which allows them to collect tax-deductible donations, was issued by my Ministry.

I told them candidly that they had lost the public trust. The NKF was built up by public donations. Without public support, the NKF could not continue. For the NKF to survive, its top priority was to regain public confidence. They agreed with my assessment and asked me if I could help shepherd the NKF through this crisis.

I told them bluntly that the status quo would not do. I added that a new Board and a new CEO would offer the best chance of winning back public confidence. They took in the message and offered to resign en-bloc to give me a free hand to reconstitute a new Board and to appoint a new CEO. That was how I got involved in this assignment. This was July 14.

In my view, the key to preserving public confidence and sustaining a vibrant voluntary sector is full accountability and transparency of all charities and IPCs. This should be achieved, first and foremost, through the efforts of the voluntary organisations themselves - their ethos, culture and policies - as determined by their Boards of Directors.

This is why my first urgent task was to find a suitable Chairman for the NKF. After pondering a few possibilities, I approached Mr Gerard Ee. I felt he was the best person to lead in this healing process. He is synonymous with charity and compassion, and is a well-known public figure. On July 15, I got his agreement to chair the new Board.

Gerard and I quickly got on to the next task of forming the rest of the Board. To regain public confidence, the Board needed Directors with high standing in their professions and in the community, with reputations for integrity and high ethical standards.

Today I am pleased to report that a new NKF Board of Directors has been appointed. In fact, they have already held their first Board Meeting. The new Board comprises:

Mr Gerard Ee, as Chairman;

Mr Koh Cher Siang, a retired Permanent Secretary and a former Commissioner of Charities, as Deputy Chairman;

The other Board Members are:

Mr Gan Seow Aan, Executive VP of Singapore Exchange Ltd;

Mr Philip Jeyaretnam, a senior counsel and current President of Singapore Law Society;

Mr Ng Boon Yew, Chairman of Raffles Campus and a member of the Council that drew up the new Code of Governance of IPCs;

Mr Peter Seah, Member of the Temasek Advisory Board and Chairman of both SembCorp Industries and ST Engineering;

Mr Ernest Wong, Group CEO of MediaCorp. He is also a Director on the UOB Board and chairs Nanyang Technological University's Endowment Fund Investment Committee; and

Prof Woo Keng Thye, Senior Consultant Nephrologist at Singapore General Hospital.

These are competent and senior individuals, with vast experience and diverse skill sets, covering accounting, banking, business, corporate governance, management, legal and medical expertise. Together with Gerard Ee, they form a strong Board with sound values and good community instincts. I know most of them personally, and I believe most are known to Members of this House too. They have good hearts and good heads. And this job requires a good balance of the heart and the head.

I was not at their first Board Meeting, but I was told that their mood was cheerful and determined. I think the obvious competence of these Directors helped everyone feel comfortable. And Gerard Ee was, as usual, organised, confident and calm. I am optimistic that the new leadership will enable the NKF to start afresh, on a sound footing.

Their first task is to appoint a new CEO. Choosing a good CEO is the single most important responsibility of any Board of Directors. They will need to take their time on this assignment. Being new to the NKF, they would first need to be clear of the organisation, its mission and objectives, before they can decide on the skill sets that a CEO needs. They should not rush through this.

That said, there is much work to be done, with daily operations to run and reviews to address the various issues which have been raised.

Hence, I suggested to the Board that in the meantime, I ask a hospital cluster to second a senior hospital administrator to be the interim CEO. An experienced hospital administrator who is familiar with managing healthcare facilities will be most appropriate at this time of need. I have such a candidate in mind but the person has to be acceptable to the new Board. We hope to settle this and announce it within the next few days.

Meanwhile, the Board has to identify and prioritise the many issues confronting the NKF. As I see it, six crucial areas require their early attention.

First is the continuation of patient care and the restoration of staff morale, which I touched on earlier.

Second, they must fully address the public unease and disquiet over allegations of questionable practices and inappropriate spending of charity funds. Let me note here that the NKF's accounts have been audited by PriceWaterhouseCoopers (PWC) since 1999. Based on MOH records, no major findings were raised, at least post-2001 when NKF's IPC came under MOH.

The new Board will no doubt want to discuss further with PWC, to get their insights on the NKF based on their past audit experience. Nevertheless, it would be helpful for the Board to commission a fresh, detailed review of financial controls within the organisation. They need to specifically ask the questions which Singaporeans have been asking: Have donations been wasted on inappropriate things? Were charitable funds used lavishly or improperly? Have there been lapses in judgement? Were any funds misappropriated? If so, could these lapses have been detected earlier?

The new Board has moved very quickly and appointed KPMG to conduct this review. The Terms of Reference of the review are being discussed. I will advise the Board to make public the findings in due course.

Third, the Board should review the adequacy of the reserves built up for dialysis patients. Is it 3 years as presented by the NKF or 30 years as argued by Singapore Press Holdings in the High Court? This will help the Board determine its immediate fund-raising needs. Meanwhile, I am glad that the NKF has taken my advice not to embark on new fund-raising activities until the Board has deliberated and determined what the funding needs of the NKF are.

Fourth, they should review corporate governance. A Board of Directors has fiduciary responsibility for overall good governance. Did the NKF Board maintain sufficient independence from the management, to provide the necessary oversight and checks on management? How was CEO's compensation determined? What was the basis of his bonus payment? Court disclosures suggest that the organisation's system of checks and balances was inadequate. Was this the case? If so, what safeguards should the Board put in place to prevent a recurrence?

Fifth, the Board should review the NKF's communications with their donors. Are there misleading claims? Are there errors? If so, they should correct any misleading statements.

Sixth, they should review the pricing and subsidy policies of the NKF's dialysis programmes to ensure that adequate assistance is provided to the intended recipients. Over the last few days, I have received several emails advising me that the NKF should provide dialysis services for free since it has such healthy reserves. This I must strongly advise against. It is one sure and quick way to kill the NKF.

The NKF has been able to build a significant reserve precisely because it does not unconditionally give away free services. Patients are means-tested and the level of subsidy varies according to the patients' ability to pay. One reason for such a stand is its belief that patients and their families should take co-responsibility for themselves. By making an effort to earn a living, the patients retain their self-esteem and live their lives more confidently. I fully endorse this philosophy, but the Board should review if the subsidy rules have been unduly stringent.

II. Ensuring a Robust Regulatory Framework

A second component of restoring public confidence is putting in place a robust regulatory framework is in place for charities and IPCs. Arising from the NKF saga, Singaporeans are asking if the Government had adequate safeguards against abuses and malpractices by charities and IPCs, and whether a tighter regulatory framework could have prevented the sad turn of events for the NKF.

Current Approach towards Governance of Charities and IPCs

Charities and IPCs are governed by two pieces of legislation, through which the Government sets the basic requirements for governance and transparency. The framework is basically sound and the legislation has served us well:

First, all charities are subject to the Charities Act. The Act promotes the effective use of charitable resources by encouraging the development of better administration, by giving charity trustees information on any matter affecting the charity and by investigating and checking abuses. Under the Act, the Commissioner of Charities (who is concurrently the Commissioner of Inland Revenue) is vested with investigative and enforcement powers to regulate charities. As a charity, the NKF comes under the ambit of the Charities Act; and

Second, charities which acquire IPC status are subject to the Income Tax Act. The Act requires IPCs to submit audited accounts and post financial information online. Under the Act, the Ministry of Finance appoints Ministries as Central Fund Administrators (CFAs) to assess and approve IPCs for tax-deductible donations. There are quite a number of CFAs and my Ministry handles healthcare-related VWOs. As a CFA, MOH ensures that an IPC maintains proper donation and accounting records, and uses any tax-deductible donation within the Income Tax guidelines. The NKF's tax-deductible fund-raising activities are covered by its IPC status under the purview of my Ministry.

The Government has been mindful to monitor developments and enhance the framework whenever necessary. Last year, the Government set up a Council on Governance of IPCs to review existing practices and to recommend enhancements to the standards of governance of IPCs. The Council was chaired by Ms Lim Soo Hoon, then-Permanent Secretary of the Ministry of Community Development, Youth and Sports. It comprised experts from the public, private and people sectors.

After extensive deliberations and consultations, the Council published its recommendations in May this year. Most of their recommendations were accepted by the Government. In essence, the recommendations were to subject all IPCs to stricter mandatory requirements from 1 Jan 2007. These include:

Ensuring that information provided to donors, potential donors and the general public is not misrepresented;

Disclosing the intended use of funds when soliciting donations; and

Ensuring that funds and donations are used according to donors' intentions and the specific purpose communicated when soliciting for donations.

The charities and IPCs need some time to comply with the new rules and best practices. Hence, the Council has set the deadline for mandatory compliance at 1 Jan 2007. I would however encourage them to adopt these guidelines and the best practices as soon as possible, ahead of the compliance timetable.

For a professionally-run IPC like the NKF, they should be the first to achieve the higher standards and be the model for the other IPCs to emulate. I will ask the new Board to set this as part of their mission.

Meanwhile, the public can and should play their part in encouraging their target charities to adopt these rules and best practices wholeheartedly. They should not feel that they must accept the charity's word when making donations. Vote with your donations. If the charity does not measure up to your expectations, donate to another cause instead.

Moving Forward: Balancing Regulation and Flexibility in a Diverse Landscape

Notwithstanding the current regulatory framework, one may ask if we need more and tighter rules for charities and IPCs to prevent future mishaps. The answer is not a straight-forward one.

One key issue is finding the right balance between regulation and flexibility. This balance is not easy to strike. If rules and regulations are inadequate, the risk of abuse is high. Yet, if we go for a very stringent standard, and hard-wire onerous regulatory requirements into the system, we are likely to snuff out many charities and IPCs which focus on assisting specific groups of the needy, and which lack the resources for elaborate administrative overheads to fulfil regulatory requirements.

The issue is further complicated by the diverse range of charities and IPCs in Singapore. There are 1,750 charities and 900 IPCs. They represent a wide spectrum of organisations of different sizes and scales, with different philosophies, interests, target beneficiaries and programmes. They cover social services, education, health, self-help groups, sports, arts and culture, advancement of religion or the community. While some people may consider this an untidy situation, it collectively represents our ecosystem of people-sector organisations supporting the needy and other worthy causes across multiple niches. All play a part in inculcating the spirit of giving and helping others.

Given this situation, it is not practical to adopt a one-size-fits-all framework in regulating charities and IPCs. We must leave room for smaller charities, which rely on a "traditional" or "cottage-industry" approach to do good work without too much fuss. We were all students once, and those of us with children will still be familiar with school flag sales, lucky draw coupons, and sponsored sports activities and challenges to support charities. It is important to have organisations continue to serve in this niche. In addition to delivering aid to the needy in specific areas, they also actively engage the community and the younger generation in community efforts. This is critical for sustainable people-sector renewal and community-building.

At the same time, we must cater to other models of charity. We must be prepared to accept larger, more sophisticated organisations which want to and can mobilise the ground, garner support and donations, and systematically raise large amounts for charity. Unlike smaller groups, these charities can deliver higher levels of service to different corners of the island, employing professionals to ensure that beneficiaries get the care they need and that the quality of medical care is continually improved. They have to plan for the long-term, so as not to worry excessively where their donations for the next month will come from. They have the focus and staying power to develop and grow programmes which take longer to yield results for their beneficiaries.

We therefore need to work out a framework with sufficient regulatory controls on larger charities, and yet which does not stifle the small charities. There is a need for differential regulation so that larger charities with large funds may have to follow some requirements from which small charities are exempt. Indeed the Council on Governance of IPCs has included in its recommendations the principle of subjecting bigger charities to higher standards, such as reporting standards.

The Council's recommendations on differential regulation do not specifically recommend differential rates of the expense ratio. The current expense ratio requirement limits charities' fund-raising expenses to below 30% of funds raised. Some people think that large fund-raisers should be subjected to lower expense ratio. But it is not clear that there are economies of scale in fund-raising. In fact, each incremental dollar may take more effort to bring in. But we can certainly re-look at this. I will definitely ask the new NKF Board, after they have settled down, to consider the expense ratio that they should be aiming for.

But frankly speaking, no expense ratio or disclosure requirement will be tight enough to catch a gold-plated tap - that is a matter of self-restraint and tone of the organisation and its leaders, which the charities themselves should set.

Over the years, the NKF has grown into a large and complex charity. It has made many positive, innovative contributions to the Singapore community, not only in dialysis. For example:

The NKF conducts preventive health screening for up to 250,000 Singaporeans a year, and operates 3 prevention centres and 5 mobile "prevention buses";

The NKF Children's Medical Fund, set up in 2001, supports 6 centres of excellence in local hospitals and institutions, provides support to children under 7 programmes, and provides help to other children's charities;

The NKF Cancer Fund set up more recently has begun to support some 140 cancer patients. Indeed, the recent NKF shows on TV were not to raise funds for kidney dialysis, but for cancer patients; and

The NKF also trains 500 clinical staff in Nephrology nursing under the NKF's Institute of Nursing, Education and Research, including continuing education in partnership with overseas universities.

From a small local VWO, the NKF is today recognised as one of the leading dialysis providers in the world, with very good clinical results. The NKF has a vision to becoming a pace-setter on the international stage. It organises international medical conferences on nephrology and transplants, in conjunction with world-renowned nursing institutions.

It has even exported its operating model to the South Pacific. Last year, the Samoa Health Minister visited Singapore because he had heard of the NKF. Kidney disease is a big problem in the Pacific Islands. Samoa had no local kidney dialysis facilities. Patients had to be flown to New Zealand and hence few received treatment. I arranged a working lunch for the Samoa Health Minister and Mr T. T. Durai. Within a few months, the NKF helped them set up the Samoan Kidney Dialysis Unit. When it was opened in Samoa in March this year, practically all the Health Ministers in the Pacific Islands attended the launch. It was a major event in the South Pacific.

Soon after that, the Fiji Health Minister visited me. He asked me to persuade the NKF to do the same thing in Fiji. I understand that discussions with Fiji, as well as Seychelles, are now ongoing.

We cannot and should not ignore, nor discount these visions and achievements.

I know many find such developments jarring. They are used to the traditional model of charity. Yesterday, Dr Robert Loh wrote to the Straits Times to suggest that the NKF should return to this model. Bob Loh is another person synonymous with charity and compassion. He is a former President of the National Council of Social Services. He personifies kindness and decency, a most wonderful man. He even finds time to help me in my Moulmein Constituency as a grassroots leader. Volunteers like him, Gerard Ee and Jennie Chua spend much of their time, energy, expertise and resources contributing to charity work without any compensation. They teach us and spread the message of philanthropy. Singapore is a much stronger society because of such individuals.

But I believe that our charity landscape can accommodate a diversity of models. There is nothing wrong with a large charity outfit run by professionals instead of volunteers, provided it is properly governed and managed. As one commentator pointed out, it is not wrong to combine "the passion of a social mission with an image of business-like discipline, innovation, and determination." We should not lose sight of the possibility that there can someday be a Singapore Oxfam or the equivalent of an International Red Cross.

Running such a large charity outfit will require full-time professionals. To recruit and retain such talent, the charity outfit has to pay a competitive wage. It is the responsibility of the board to determine what this wage is and to defend their decision, if necessary. To avoid abuses and criticisms, the Board will need a robust HR management system to design an appropriate compensation scheme, a sensible incentive bonus programme and proper checks-and-balances which ensure independence between the Board and the CEO. Unfortunately, the former NKF Board appears to have fallen short in this regard.

It will also be necessary for such an outfit to be transparent in its disclosure, so that donors can be satisfied that their money is being put to good use. There is a dilemma here - if the charity declares every detail of its senior staff's remuneration, many capable people may not want to work there, but if it does not do so, donors may be unsatisfied, and may take their donations elsewhere. This is a real problem which many organisations face. There is no ideal solution to be found in governance rules or disclosure standards, though these are necessary. In the end, we must depend on putting people of integrity in charge, and earning the trust of the public that honourable men are doing their best for a good cause.

Conclusion

Mr Speaker, Sir, charity's work is never done. There will continue to be many needing help, and those who are more fortunate will always need to reach out and lend a helping hand. That is what being a society, and indeed, a nation, is all about.

I am most heartened by the outpouring of constructive suggestions and offers to help. Over the weekend, I have received so many emails from people volunteering to contribute their effort and time to improve the NKF. Such civic responsibility and social conscience of Singaporeans will certainly help to build a stronger volunteer and charity sector.

I am confident that together, we can turn this unhappy saga into a fruitful learning experience with a positive outcome. The cause for charity should not be diminished by this episode. If we learn the right lessons, and are skilful in managing the growth of our charities and IPCs, our charity landscape and our society will emerge stronger, to the benefit of all Singaporeans. While the process of change takes place, I appeal to Singaporeans to remain objective, patient and generous.

Meanwhile, Singaporeans with the passion, expertise and knowledge should continue to step forward and help our many charities. They can offer to serve on Boards to help improve governance, or serve as volunteers to help charities provide better services at lower cost. Indeed, many Singaporeans are making a difference to the community every day. Let us not allow one sad episode to discourage us from doing good. Instead, let us pick ourselves up and do even more to help our fellows in need.