NATIONAL KIDNEY FOUNDATION SAGA (Clarification of KPMG's comments)

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NATIONAL KIDNEY FOUNDATION SAGA:

(Clarification of KPMG's comments): 4.

Mr Steve Chia Kiah Hong asked the Minister for Health (a) if he can clarify his public comments that the Government accepts KPMG's sharp comments on the regulators in respect of the NKF saga; and (b) whether some Government officials will be dismissed, charged or reprimanded for their failings.

The Minister for Health (Mr Khaw Boon Wan): Mr Speaker, Sir, Mr Steve

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Chia wanted my clarification on KPMG's sharp comments on the regulators in respect of their handling of the former NKF.

I encouraged the KPMG auditors to take a thorough, objective and critical approach as I wanted the right lessons to be learnt from this episode. Actually, the KPMG had sharp comments on practically everyone who had anything to do with the NKF, from its former CEO, Board of Directors, the auditors and the regulators.

But while many were criticised, the NKF problem was essentially created by a small group of people, led by the former CEO, who exploited their Board's weak corporate governance. This was the crux of the NKF problem.

If the auditors were more alert and the regulators more persistent in investigating the former NKF, the problem might have been discovered earlier. But of course, it is easy to criticise such shortcomings on hindsight. When you have a CEO who was determined to cover up his unusual conduct and who was supported by a captured board, it would take some time for outsiders to uncover his deeds.

The regulators accepted the KPMG criticisms and they have learnt from this incident. But were the regulators responsible for the NKF problem? Remember that the NKF was, and still is, a non-Government organisation, a private company.

Was there gross or wilful negligence on the part of the Government officers who regulated the former NKF? Did they fail to take reasonable efforts to look into the former NKF under the prevailing regulatory framework?

Let me take Members through the KPMG report where it spoke on the regulators. The KPMG commented on the

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regulators in three areas. First, KPMG felt that the regulators could have coordinated their duties better and streamlined their regulations for greater clarity. This is a structural issue and we will fix it. Hence, the Inter-Ministry Committee on Regulation of Charities and IPCs has proposed a revised structure, comprising the Commissioner of Charities and six Sector Administrators, with clearly-defined roles and responsibilities.

Second, KPMG noted that the appointment of a Ministry of Health's representative on NKF EXCO in 2000 had not helped to uncover the NKF's problems. But that was not her mission, nor the reason for MOH inserting a representative there. MOH was concerned over the rapid promotion of haemodialysis by NKF and thought that a representative on the NKF EXCO could help influence NKF's clinical policies away from that direction. But after four meetings, when she found that the EXCO did not discuss such policy matters and dealt largely with daily operations, she withdrew from the NKF EXCO.

Third, KPMG felt that when the National Council of Social Services (NCSS) transferred the NKF to MOH in 2002, the regulators had not conveyed their concerns over the NKF's use of funds and fund-raising expenses. But they did. What were the concerns of the NCSS? The NCSS acknowledged that the former NKF fund-raising expenses were in compliance with the 30/70 rule but wondered if they were unduly high. But as kidney dialysis was medical in nature, NCSS felt that MOH would be more competent to assess this and that was why NKF was moved from NCSS' supervision to the Ministry of Health.

After taking over as a Central Fund Administrator, MOH has dutifully checked on the NKF's compliance with the IPC rules. It did so by relying on the NKF's former auditor, Pricewaterhouse. In

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addition, in late 2004, MOH also commissioned another auditor, KPMG, to conduct a review of the NKF to assess its compliance with IPC rules. In that 2004 review, KPMG identified several deficiencies, such as inactive funds, funds with overlapping objectives and some internal control lapses. These deficiencies were duly rectified. Please note that the 2004 KPMG review did not reveal the major problems in the old NKF that it subsequently uncovered in 2005, a few months later, with massive resources after the former NKF Board and CEO had resigned.

So overall, there was no deliberate, irresponsible behaviour on the part of the officers who regulated the NKF. But they have learnt a valuable lesson from this episode and indeed we all have.

We must continue to develop our voluntary sector and give it ample space to grow. Regulators will tighten rules where appropriate, but no amount of regulation can guarantee that no unscrupulous individual or group will ever attempt to abuse the system. However, such abuses will eventually still be found out, and the wrongdoers punished in accordance with the law.

Mr Steve Chia Kiah Hong: Mr Speaker, a point of clarification. In my original submission of the Question, I asked about the Minister making a comment during his public press conference over TV that the Government accepts responsibility for the NKF issue. My question was to clarify what does it mean by "accepting responsibility". Does it also entail the Government issuing a public apology to the people? What does it mean by "accepting responsibility"?

Mr Khaw Boon Wan: "Accepting responsibility" means that we

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acknowledge the problems as defined and identified by KPMG, that there were problems of various kinds at different levels, and let us extract the lessons from there. At the same press conference that Mr Steve Chia mentioned, I did apologise because all of us, in different ways, have contributed to this outcome. NKF's mode of fund-raising has been around for quite some time. There were pluses, and now, we have uncovered that there were also minuses. But the key point is for us to get to the bottom of it. And what is the bottom of this? The crux of the matter is that a small group of people deliberately, through various means, misled, in a way, the entire society, including Mr Steve Chia and myself.

Mr Speaker: Order. Mr Wong, you have a statement to make?