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     FrontPage Edition: Tue 20 Dec 2005

KPMG submits report on NKF to the new NKF Board



KPMG¡¯s report on investigation into the National Kidney Foundation (NKF)

1.1. In July 2005, when the new NKF Board took office, it commissioned KPMG to conduct an independent investigation into NKF¡¯s past practices. KPMG has completed its investigation and submitted its report to the NKF Board on Friday, 16 December 2005.
1.2. The full investigation into the past practices of the former NKF board and management revealed poor management practices and a lack of good governance of the NKF under its previous Board and management, and even questionable ethical conduct.
1.3. Over the past 5 months, the new NKF Board has taken active steps to improve governance and accountability, enhance transparency, reduce operating costs and improve patient care. On top of these, clear human resource and remuneration policies have been established and financial management strengthened to prevent abuse.
The new Board recognizes that it is our moral imperative to manage the NKF in accordance to the principles of good governance, integrity and accountability to our donors, and will continue to improve the NKF¡¯s governance framework and management practices to regain the public¡¯s confidence.
2.1 For the investigation, KPMG devoted a team of forty professionals and more than 10,000 man-hours in its investigation. It sought to address questions in nine key areas.
2.2. In its report, KPMG has highlighted major weaknesses within NKF¡¯s the governance framework.
The new NKF Board is seeking legal advice on whether there were corporate practices which might have crossed the legal/regulatory line, and on the appropriate course of actions to be taken against the former NKF Directors/EXCO Members and others where applicable. NKF will have to be mindful of balancing the cost of any actions and the interest of the organisation.
2.3. In this press release, we assume that readers would have read the full KPMG report. Hence only salient information in the report will be highlighted for presentation.
2.4. The key KPMG findings are summarised below, together with the new NKF Board¡¯s follow-up actions:
Q1: Whether there existed any deficiencies in control, oversight and independence relating to issues of governance of the NKF?
3.1. Function of Former Board versus the Executive Commitee
3.1.1. KPMG found that the former NKF Board delegated all powers to the Executive Committee, which in turn delegated most, if not all, powers to the former Chief Executive Officer, Mr TT Durai. The Board was largely an ineffective one, which resulted in the concentration of power and authority in Mr TT Durai.
3.1.2. The new NKF Board consists of a panel of eminent professionals who are experts in their respective fields. Their roles and responsibilities are clearly spelt out and well delineated from the executive management and staff.
The Board has also formed 7 committees in charge of specific areas: Audit Committee, Finance Committee, Legal/Governance Committee, HR/Remuneration Committee, Investment Committee, Nomination Committee and Medical Committee.
3.1.3. The new Board and management have also revised the NKF¡¯s administration organization structure to achieve a higher standard of governance and accountability.
3.2. Human Resources
3.2.1. Under the former NKF management, the NKF did not have a formal remuneration policy nor a comprehensive HR policy on staff benefits, which led to the apparent arbitrary determination and awarding of promotions, salary increment, performance bonus and other discretionary payments.
3.2.2. Now, the NKF has new HR policies that contain clear guidelines covering all aspects of staff benefits and entitlements as well as HR processes. Some of these polices are already in force while others, like the new salary policy, will be introduced from 1 Jan 2006.
When the salary policy is implemented, the NKF will have a clear salary and grade structure and therefore a progression path for its staff. It will define salary ranges, annual increments, performance payments and there will be defined processes.
3.3. Financial Management & Control
3.3.1. The former NKF Board had a Finance Committee, but was largely ineffective. KPMG found numerous breaches of stated purchasing policy and noted inadequacies in finance and accounting controls.
3.3.2. The new NKF Board has put in place a clear finance policy with checks and balances on approval limits and limits on cheque signatories. This will ensure proper and controlled processes for budgeting, purchasing, tenders, contract approvals and claims.
3.4. Disclosure & Transparency
3.4.1. The NKF Board¡¯s Audit Committee was also found to be ineffective.
3.4.2. The new NKF Board will outsource its Internal Audit work to an independent CPA firm to ensure maximum impartiality.
Q2: Whether the NKF made or caused to be made misleading claims as to patient numbers, patient subsidies and treatment costs?
4.1. KPMG found that figures relating to the number of kidney patients, patient subsidies and treatment costs were inflated or misleading in its press releases and fund raising promotional materials.
4.1.1. In the amount of funds that was raised and used for dialysis. KPMG found that based on the financial statements for the year ended 31 December 2003, approximately 10 cents out of every charity dollar went towards subsidizing patients¡¯ direct treatment costs.
4.1.2. In the NKF¡¯s Investment Report 2004, it was reported that ¡°out of every dollar NKF raised in 2003, $0.52 went to our beneficiaries and programmes for the year,¡­¡±
4.2. The new NKF Board had, in a press conference and subsequent public disclosures, clarified a number of issues, including: patient numbers of the NKF, treatment costs and subsidy amounts per dialysis patient given by the NKF.
Key statistics are now available online at its website The public and donors can now obtain current information on the number of patients under the NKF dialysis programme, number of LifeDrop donors, the amount of donations collected and NKF expenses among other data.
4.2.2. Applying the same basis of calculation by KPMG, the new Board aims to increase the amount spent on dialysis in FY 2006 to be at least 41% of charity income. To achieve this, the NKF will focus on its core business and have stricter control over expenditure on support, ancillary and administrative activities.

Source:  Press Release 19 Dec 2005

Related Articles:
- Responses to KPMG report on NKF
- NKF - win back donors' trust

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