- ST July 14, 2005
High expense, surplus ratios cause for concern
WHILE the efforts of the National Kidney Foundation (NKF) are noble, it appears that its financial stewardship may not be benchmarked to standards practised by organisations, big or small, from around the world.
We can compare various charitable organisations by the amount of expenses incurred against the amount of money raised, that is, the expense ratio.
In 2003, the NKF raised $100.3 million and incurred expenses of $29.9 million. Thus, its expense ratio was 29.8 per cent.
This means that for every $100 that was donated by the public, $29.80 was incurred for expenses and only $70.20 actually made it to the pockets of the beneficiaries.
In comparison, similar organisations like the American Red Cross and Singapore Red Cross have expense ratios ranging from 9.2 to 20.3 per cent.
Another ratio of concern is the surplus ratio. In 2003, the NKF retained $34.2 million out of the $100.3 million raised. Thus, it had a surplus ratio of 34.1 per cent.
Other similar organisations have a surplus ratio of 1 to 3 per cent; some even suffered a deficit!
If there is a substantial surplus every year, why is it necessary for the NKF to raise so much funds and thereby incur extra expenses?
Cheah Khuan Yew
Mr Wang Zhen is not an accountant. But Mr Wang Zhen is in the banking industry. And in Mr Wang's previous bank, Mr Wang Zhen recalls coming across a international charitable organisation that wanted to open a bank account in Singapore.
I cannot recall the name of the organisation now (I only recall that it was some Christian organisation headquartered in the UK - it may even have been a church). I do recall looking at its various documents. Among its documents were its financial statements. What the financial statements showed was that for the preceding three or four years, the organisation collected about US$80 - 100 million per year in donations, and each year it indeed spent almost all that money on a very wide range of charitable projects -
building schools in Africa; helping hurricane victims in Bangladesh; running agricultural training programmes for rural farmers in Cambodia; building a hospital in Papua New Guinea etc etc.
This organisation is another example of a charity having a low surplus ratio. In other words, whatever donations it receives from the public, it immediately channels to those in need of help. In years when the organisation received larger donations, it would hand out more money. In years when it received smaller donations, then it would do less.
This may not necessarily be the best working model for a charity. But it does indicate, to me, at least, that it is ridiculous for a charity to hoard reserves for the next 30 years.
Even in the pure corporate context, companies do not like sit idle on cash reserves for which they have no ideas about how to use. If they have a lot of cash and they don't know what to do with it, they return the money to their shareholders via share buybacks and capital reduction.
Drawing a further analogy from the commercial world -
in the realm of mutual funds and unit trusts, an independent trustee is often appointed to be the custodian of the funds. What can or cannot be done with the funds is spelt out in great detail right from the beginning, in public documents which are lodged with the authorities. In the NKF situation, this would be akin to a situation where the NKF money is held by a professional trustee (such as HSBC Institutional Trust Services), and the HSBC trustee will simply not allow TT Durai to use $1,000 on a gold tap unless something in the trust documents permits this.
Alas, it seems that no such checks and balances existed in the NKF case.