Corporate governance review of 12 selected Institutions of a Public Character (IPCs) under MOH

21 Feb 2007

Introduction

MOH has completed a review of the corporate governance standards of the largest IPCs under its purview.  As part of its efforts to raise standards of corporate governance, MOH is asking these IPCs to take follow-up actions to address the weaknesses and gaps identified in corporate governance and internal control standards.  Actions will be tailored to each IPC's unique needs.

Background

In July 2006, MOH appointed Ernst & Young Associates Pte Ltd (EYA) to conduct this review as part of MOH's efforts, as Sector Administrator, to raise awareness on corporate governance issues and to ensure that acceptable standards of corporate governance are maintained at all times.   Of the 12 IPCs selected for this review, 11 had annual incomes exceeding $5 million while 1 IPC had earlier been scheduled for review as part of MOH's regular audits on Health Endowment Fund accounts (list at ANNEX A).  

The review covered 3 key areas: (a) corporate governance structure, (b) internal controls, and (c) compliance with relevant Income Tax Regulations.  The scope of the review is outlined at ANNEX B.

Key Findings

The key findings and follow-up actions required are:

1. The need to strengthen roles of the Board.  While their intention to serve the public good is genuine, the review shows that awareness among Board members could be improved with regard to the responsibilities associated with managing a charitable organisation and the duties that accompany Board membership.  Active participation by all Board members in decision-making is important to enhance the effectiveness of the Board's oversight role.  In addition, Board members should understand the requirements needed to better fulfill their fiduciary responsibilities in overseeing the IPCs. Some recommended areas for improvement include:

    i. Separation of duties between the Board and Management eg. Board Chairman and Chief Executive Officer (CEO) should not be held by the same person, while Management staff should generally not be Board members.

    ii.Board meetings to be held more frequently - at least once every 4 months (as recommended by the Guide to Best Practices for IPCs).   

    iii.Set up of Committees to ensure better oversight of specific areas such as Audit, Programmes and Services, Fund-Raising, Investment, Human Resource and Appointments.

    iV.Effective management through defining outcomes expected and evaluating performance.

2. The need to put in place policies for managing / avoiding conflicts of interest.  There should be formal documentation of policies and procedures to manage / avoid conflicts of interest eg. declaring relationships with other Board members by blood or marriage.

3. The need to properly represent the entity to the public.  This includes disclosing alternative use of donations and details of fund-raising activities.  There should be appropriate processes, criteria and documentation for selecting 3rd party fund-raisers.

4. Need to improve internal control measures.  Some examples of common areas for improvement were:

    i. Proper segregation of duties in cheque payment processes, in purchasing and revenue collection.  Approval limits for signing of cheques should not be excessive.

    ii.Compliance with purchasing policies and delegation of authority.

    iii. Ensuring that terms and agreement with external parties are not entered into if they are not in the entity's favour.

The findings have been discussed with individual IPCs, and the detailed EYA findings have been given to them.  Many of the IPCs have already started closing the gaps identified by EYA. MOH has asked that the reports be formally tabled at the IPC's Board meeting for discussion.  As the review reports are in the nature of Auditor's reports, they will not be made public.

Benefits of the Review

The exercise has provided a systematic platform to sensitize our IPCs to best practices and important internal control measures that should be adopted. IPCs have already started addressing the gaps identified. This is a positive outcome.  With greater awareness of these issues, IPCs should progressively work towards achieving the desired standards of corporate governance by putting in place the necessary structures and measures.

This review has also helped MOH, as Sector Administrator, to identify critical areas to focus resources on when helping the IPCs to improve their corporate governance standards.  As these are the larger IPCs, MOH will be paying closer attention to them.

Going Forward

MOH will be requiring the 12 IPCs and their Boards to rectify the weaknesses identified by the review within 6 months, with some subset of these being complied with immediately.  They should also plan to systematically improve their systems and processes for oversight and controls. MOH will facilitate the IPCs to pursue improvement efforts.

MOH is also working closely with the Commissioner of Charities (COC) in MCYS on areas that are common to the charity sector in general (e.g. proper interpretation and application of best practices, etc).