The responsibility of PwC in preventing the scam has been muted. They are trying to 'take cover' and seem successful so far. In the report on NKF, KPMG delicately found it "puzzling that the statutory auditers did not have more observations to report at the end of their audits." Some complicity in PwC?Just how much did the NKF board and exco know, and ought the auditors have done more?
Tuesday • December 27, 2005; Today online
I WANT to talk about liabilities and the role of the auditors.
There is a widely held view that if "everything was approved by the board and Executive Committee (EC)", then the ex-CEO of the National Kidney Foundation (NKF) and others would get away with what they are alleged to have done.
Relax. It isn't that easy to evade justice. There is the issue of what was it that was approved exactly, and whether decisions were made with the knowledge of all material facts.
The ex-CEO could have gone beyond what he was authorised to do by the board or EC. The latter may now say that they now know that actions taken by the ex-CEO went beyond the scope of what had been authorised or intended. And that they were not fully informed of these actions.
Also, their "authorisations" may have resulted from being misinformed, misled or deceived. Inconvenient material facts may have been concealed or twisted.
There is a case in America that is relevant in understanding what could have happened. It is an extremely complex case which I am simplifying almost to the point of caricature.
Recently, the ex-CEO of Tyco was jailed in the United States. His defence to various criminal charges was that he had had board approval for his actions (huge salary payments, a party for his wife at Tyco's expense and so on).
Among other things, the prosecutors succeeded in convincing the jury that he misled or misinformed the board, making the defence of approval irrelevant.
If exceeding authority or misinformation can be established (and it's all a question of oral and documentary evidence), then the ex-CEO and company should find that they don't have the shield of approval. What they did was beyond the scope of the approval, or that approval would not have been given if the board or EC knew the facts, not a distorted version.
The board and EC members may be legally accountable. They may be in breach of their statutory or fiduciary duties and could face criminal or civil proceedings.
What they knew, and when they knew it, could decide their fate.
But don't assume that all the board or EC members are guilty of something or anything dastardly. Like us, some or the majority of them may have been deceived or misled.
When we pass judgement, remember that they are volunteers.
On the issue of whether the NKF's ex-auditors, PricewaterhouseCoopers (PwC), did anything wrong or were negligent, let's wait for the promised statement from the Institute of Certified Public Accountants of Singapore (Icpas), which is responsible for professional standards.
Though I must say I found the ex-auditor's response rather arrogant. They said: "Our primary responsibility was to express an opinion on whether the NKF financial statements show a true and fair view. We believe we have discharged that responsibility."
After all, as a member of the public has written in to point out, "Costs and subsidies were inflated, and numbers manipulated, according to KPMG, but these were not detected in the several years that PwC had been auditing NKF's books". (Incidentally, could Icpas also comment on the role of the internal auditors if they were members? What were they doing?)
And KPMG did criticise aspects of the ex-auditor's work. Usually professional solidarity means members of any professional body do not criticise other members.
Finally, even if he was rather kind to them, the Minister of Health did find them wanting.
To be fair to PwC, last year when KPMG looked into NKF's tax-deductible receipts, KPMG did not uncover any large-scale weaknesses, and gave no indication of the extent of the poor governance and mismanagement.
And it's not easy to detect irregularities if there is an intention to deceive or conceal.
On this issue, even though the auditors rightly say, "Our job is not to detect fraud", I am under the impression (correct me if I am wrong) that auditors have to check that the controls are there to enable them to give "a true and fair view" of the financial statements.
If, in the end, the authorities find their conduct unbecoming, they deserve a deterrent sentence, so that other auditors will be less cavalier in their audits and statements.
Finally, also a personal observation on the NKF saga: Let's stop criticising the Government over its inaction.
If we want less Government interference, expect more things to go wrong. Even if the state is intrusive, things can still go badly wrong. Witness the collapse of East Germany.