14 July 2005

Here is the Accountant's Way of Looking At It

    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.


Anonymous said...

Hmmmm.... But NKF is in for a long term when it decided to take in patients. They cannot reduce spending whenever they like, as that would affect they people they serve.

However I do feel S$262 million is way too excessive. The portion of $ which goes to patients is also too little.

Gilbert Koh aka Mr Wang said...

I did not really keep up with the news last year, but if I am not wrong, there is already something on the cards about legislative changes to compel charities to make better disclosure of their finances to the public. Not sure if those changes have come into effect yet.

Durai's case raises many problematic issues. Unfortunately, I don't think it is so easy to separate Durai from NKF. He was, and is, their No. 1 man and from the sound of things, thoroughly controlled the organisation and how it operated.

Frankly, I think that the word "National" in National Kidney Foundation is deceptive. Now that we know how the NKF works, I think it should be compelled to rename itself.

The word "National" gives people the impression that you're dealing with some entity that is somehow linked to the government, somehow accountable and auditable and regulated and controlled. Now it seems that the only person who ever really controlled the NKF was Durai.

The way he charged around effectively suing his detractors in the past is also very disturbing. It raises old issues about the law of defamation, and shows why certain countries are more "lax" about defamation, when the defendant makes statements on a matter of public interest.

Sometimes the defendant sees something significant and smells something suspicious, but he doesn't quite have the full facts to prove it. This is quite understandable, especially if the entity he talks about is a creature like NKF, quite powerful and quite determined to guard its secrets.

In these sorts of cases, the law should perhaps be less rigid about the law of defamation.

Gilbert Koh aka Mr Wang said...


Why would a charity need reserves that can last for 30 years?

A charity would only need that if it felt that for the next 30 years, it would be unable to get any donations from the public.

But that is ridiculous.

When Davinder Singh tells you that NKF has reserves to last for 30 years, don't forget that what he means is:

NKF can completely stop all its charity shows; cancel all its fundraising efforts; cease soliciting for donations; sack all its staff who organise fundraising efforts;

in effect, do absolutely nothing for the next 30 years

and still have enough to support all those kidney patients ...
for the next 30 years.

Anonymous said...

Thanks for this commentary and analysis. It really shows that the NKF is not a charitable organisation at all.

Anonymous said...

NKF can in fact reduce its spending without compromising the welfare of its patients. Isn't it clear by now that they have been spending on many other things besides?

And yes, Mr Wang. I wholeheartedly agree with a previous comment you made, that besides Durai, the practices of other members of top management should also come under scrutiny. In my imagination, some of them are heaving a huge sigh of relief that they're not the one in the dock and are busily cleaning up their tracks.

Anonymous said...

Why is NKF even having a corporate identity or creating an expensive corporate culture? They are a charitable not-for-profit organization whose main source of revenue is donations from the Singapore public. Then in all that's holy, why is Durai flying at all? Why does NKF have a massive huge commercial building? And why is Durai being paid the salary of a commercial CEO? The public donated the fracking funds that the parasite is sucking. Moreover considering the huge waiting times that kidney patients have to endure- surely the NKF is being misappropriated!