Commissioner of Charities' Review of Governance in 2008

Mr Laurence Lien asked the Acting Minister for Community Development, Youth and Sports (a) why the Commissioner of Charities' governance review of seven large charities in 2008, which included a review of City Harvest Church, did not uncover the lack of compliance with regulations and the code of governance; and (b) whether the governance review methodologies have to be reviewed.

The Acting Minister for Community Development, Youth and Sports (Mr Chan Chun Sing): Mr Speaker, Sir, before I commence, may I take this opportunity to remind Members of the House that the case against certain members of the City Harvest Church is now before the Court. We should thus refrain from making comments that may prejudice the court proceedings.

Sir, the Commissioner of Charities (COC) adopts a risk-based approach in regulating the charity sector. It uses different tools for different purposes and situations. Overall, the COC strives to maintain public confidence in the charity sector through improving governance and regulatory compliance while not over-burdening or stifling charities.

Governance review is one of the regulatory tools. Its purpose is to help charities improve their standards of corporate governance, internal controls and regulatory compliance. A governance review is carried out with the cooperation of the charities, which provide the requisite documents for review and demonstrate the extent of their compliance. At the end of a review, a charity will need to develop action plans and implement measures to address the areas of concern highlighted.

A governance review is not meant to be an audit, much less an investigation or formal inquiry to detect and establish fraud or mismanagement. A formal inquiry is more specific, intrusive and in-depth, and may include forensic work or seizure of documents. If mismanagement or misconduct is uncovered in such investigations or inquiries, the COC may take action against the charity or individuals associated with the charity. Any suspected fraud or criminal wrong-doing uncovered will also be reported to the Police which may conduct criminal investigations.

It is not always possible in a governance review to detect signs of mismanagement or fraud, although the findings of a governance review could sometimes be a trigger point for further work by the COC. This is no different from financial audits in the corporate world. The COC also makes use of other sources of information, including feedback, complaints or whistle-blowing to assess if an investigation or a formal inquiry into a charity is necessary.

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Sir, Mr Lien asked about the governance reviews on seven large charities conducted by the COC in 2008. The reviews had found then that the seven large charities generally had proper systems and processes in place, and were largely in compliance with the regulatory requirements and the code of governance.

Where there were findings of weaknesses, the COC's office worked with the charities to improve these gaps. The charities adopted most of the recommendations.

I am unable to provide more information on the specific findings on the City Harvest Church in view of the impending court case. It suffices to say that the inquiry on the church initiated in May 2010 was not triggered by the governance review in 2008, but feedback and complaints on possible misuse of church funds received in early 2010.

Governance reviews are still relevant as one of the tools in the regulation of charities by the COC. It helps charities improve their governance standards. We will continue to evolve the methodology over time so that we can better achieve this purpose.

Mr Laurence Lien (Nominated Member): Sir, I would like to thank the Acting Minister for his comprehensive answers. I have two supplementary questions. One, whether the Acting Minister agrees that members of the public as well as members of the charities that are being reviewed in these governance reviews do rely on the clean bills of health that are given by the COC in these reviews? And, two, whether it is better to conduct such reviews either more rigorously or not at all, or even, alternatively, to outsource governance reviews to firms that specialise in audits?

Mr Chan Chun Sing: Mr Speaker, Sir, I thank Mr Laurence Lien for the supplementary questions. On the first issue as to whether a governance review would give the respective charities a complete clean bill of health, as I mentioned in my answer just now, a governance review adopts a protocol that is cooperative in nature and it will go to a certain level of depth. It is not always possible for a governance review to uncover everything. For example, in this governance review, it will take a couple of months for them to do the governance review with the respective charities. But for specific investigations, like what has been done for the City Harvest Church, it took us two years of in-depth inquiry to find out many of the things that may not be uncovered in a governance review. So, while we would like a governance review to detect as many signs of trouble as possible before they arise, I must say that because of the limited nature of the governance review, it may not be able to uncover everything altogether. But we will continue to learn from the lessons and evolve the methodology to try and give as much assurance as we can to the public who are contributing funds to the respective charities.

On the second issue about outsourcing the governance review, I would like to inform Members that, in fact, the governance review is not just conducted by the COC. For the governance review in 2008, in fact, some of the accounting firms were involved with us, in partnership, giving us their advice on what were the best practices to be done. So, indeed, we constantly work with some of the accountancy firms to have the best practices in all our governance reviews.

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