Overview and Summary:

As early as 1997, there were allegations of improper conduct at NKF such as extravagance indulged by the then CEO Mr T.T Durai for flying first class. However, TT Durai and NKF filed suits against these allegations, stating that the allegations were defamatory. Mr Durai and NKF won those legal suits. The truth cannot be hidden forever, and the long arm of the law finally caught up with Mr Durai in 2005.

The Straits Times published an editorial “NKF: Controversially ahead of its time?” on 19 April 2004, written by senior correspondent Susan Long. Mr Durai filed a suit against Spore Press Holdings (SPH) citing defamation yet again. The trial began on 11 July 2005. During intense cross examination, Mr Durai finally crumbled. The court proceedings revealed inter alia the following:

• some of the fittings in the NKF headquarters, which were highlighted in the Straits Times article, were indeed extravagant for a public charity. The article spoke of a glass panelled shower, a pricey German toilet bowl and a gold-plated tap.
• Mr Durai’s annual salary is about $600,000, which is way too high for an employee of a public charity
• Mr Durai flew first class on many occasions
• Patient numbers: overstatement of patient numbers to give an impression to the public that more funds were needed to run its operations.
• Reserves: Misrepresentation by NKF that its reserves can only last 3 years when in effect it could last 30 years, based on estimates by the lawyer representing SPH

With the truth coming to light, Mr Durai had no choice but to withdraw his suit against SPH.

On 14 July, 2005 TT Durai and the NKF board resigned en masse. Health Minister, Mr Khaw Boon Wan appointed Mr Gerard Ee as interim chairman and CEO.

In July 2005, KPMG was commissioned by the new NKF board to study past practices. KPMG published its report in December 2005, with key findings including:

• The Board delegated its authority to the Executive Committee, and the Executive Committee delegated its authority to Durai.
• In 2003, only ten cents out of every dollar raised were used for dialysis costs. In its 2004 annual report, NKF had claimed that 52 cents out of every dollar went to its beneficiaries.
• NKF awarded contracts worth $3 million to Forte Systems and $4 million to Protonweb, both run by a close friend of Durai. Neither project was successfully completed, but no action was taken against the companies. In KPMG’s view, the terms of the contracts were “unusual” and the ExCo’s disregard of the lack of performance was “extraordinary”.

Issues Arising:

Poor Corporate Governance – the then NKF Board delegated all powers to the Executive Committee, which in turn delegated most, if not all, powers to Mr Durai.  Power was centred around one man, and was exercised in an ad-hoc manner through Mr Durai and his long-serving assistants. Since its incorporation in 2001, it only saw two departures and the directors were never replaced. What is more, out of 21 members in the former board, only eight attended NKF’s AGMs, and all of them sat on the Executive Committee. Effectively, that meant the former Board was further concentrated in the hands of five directors, of whom four were given executive powers. According to the report, the Audit Committee was ineffective because it hardly met regularly. From June 2002 to January 2005, there was only one informal meeting in 2004 to discuss the revival of the Audit Committee.

Considerations by Auditors:

~ Internal control weaknesses
Did the auditors adequately assess the internal control environment at NKF? Were they aware that a lot of power was centred around Mr Durai and hence there was a lack of check and balances? Why did they never issue any suggestions on how NKF could improve its check and balances ( i.e Internal Control Recommendations)? Did they exercise Professional Competence and Due Care as required by Section 130 in the Code of Professional Conduct and Ethics?

~ Objectivity
Did the auditors assess objectively the integrity of the CEO and the NKF Board? Did the auditors merely take it for granted, due to the “brand name” of NKF? – i.e something akin to the general feeling that internal controls are generally stronger at larger organizations than smaller ones. Were the auditors in breach of Section 120 on Objectivity in the Code of Professional Conduct and Ethics?