Not the APHTEC Accounts

Hello folks. Time really flies and it’s already October, almost a month after the last General Elections where important national issues such as whether Paul Anath Tambyah’s admiration for the similarly trichologically-challenged DPM Tharman was misguided or if Tin Pei Ling will get make-up maternity leave were never discussed. Instead, there was a lot of talk about the AHPETC accounts. For those of you who live on Pluto and therefore do not know what it stands for, this Hobbit is happy to tell you that AHPETC stands for “Anyhow Hantam People, Everyone Totally Confused”. Thankfully, going forward, it is only AHTC, which stands for “Any How Talk Cock”.

But this month’s column is not about the AHPETC accounts, which have been dissected to death, much like my A levels biology laboratory cockroach.

For those of you who get a high from looking at numbers, there is juicier stuff than the AHPETC accounts. We are talking about the Singapore Medical Council (SMC) accounts. For the avoidance of doubt, there is absolutely nothing mischievous or unreliable about the SMC accounts, which are unqualified by the auditors. For those of you who are uninformed about how the accounting and auditing profession works, here’s a simple summary:

· “Unqualified” accounts is good, “qualified” is bad. This is completely different from how the medical profession works of course, where the unqualified practice of medicine is basically quackery and qualified means you have to pay SMC money eight hundred bucks every two years and attend CME. And can you blame people if they are confused about the AHPETC accounts. Remember – in accounting, unqualified is good.

· Accounts have to be “true and fair”. This true and fair concept is fundamental to the whole practice of audit. Accounts must be “true and fair”. But there is no mention of accuracy. So the standing joke among accountants is that accounts have to be true and fair but they need not be accurate. Contrary to public perception, accountants do have a sense of humour and some of them even have biological processes like micturition and defaecation.

With these two important points in mind, let us now move on to the matter at hand – SMC accounts. The published accounts are reliable because they are true and fair and unqualified.

First of all, this hobbit would like to thank and praise the current SMC administration for finally publishing the financial accounts in the latest (2014) Annual Report. Light is the best disinfectant and the act of publishing the accounts is illuminating.

The first red flag that screams out to you in the financial statements is that SMC is in the red. It is more in the red than Paul Ananth Tambyah and Chee Soon Juans’ polo-shirts put together. In fact, it is redder than all the red ties that the entire Cabinet wore at last evening’s swearing-in combined. It is so red, it makes my Alexandra Village ang-gu-kueh look anaemic.

In the Statement of Comprehensive Income (which is a fancy, new name for Profit and Loss Accounts) on page 63, it is reported that SMC made a loss of $2,607,382 against a total income of $5,206,951. In business, people talk about profit margins. For example, if you made $1 out of a revenue/income/sales of $10, the profit margin is 10%. The other side of the coin is the loss margin.

In the case of SMC, the loss margin is $2,607,382/$$5,206,951 or 50%! In simple layman terms, it is like a household that is living way beyond its means – it is spending $3 for every $2 it makes. If this was a company, the CEO, CFO and just about the entire senior management have to ask some very serious questions about their own existence. The board of directors and shareholders too have to ask themselves whether this company needs some very serious restructuring. If this was a publicly listed company and this situation persisted for say, 3 years, the stock exchange and auditors may even have to ask if this company has an issue of being “an ongoing concern”.

But thankfully, the SMC is a statutory board and its existence is guaranteed, as its name suggests, by statute (law passed in Parliament). As Minister Lim Swee Say would say, “Heng ah”.

But the losses are real. SMC is still spending $3 for every $2 it receives. One gets more information into this situation when you delve deeper into the Notes to the Financial Statements. In Notes 15 and 16, Employee Compensation came up to $5,365,442. This is against the background of Total Income of $5,206,951 and Total Expenditure of $7,814,333.

In other words, total manpower costs ALONE was more than the total income for SMC. This excludes all other operating costs, like utility costs, legal costs, rental etc. Again, if this was a company, it is a very scary situation. Can you imagine if you clinic’s salary costs alone is more than the total revenue of the clinic?

The next biggest chunk of costs is legal expenses (Note 14). The picture is summarised as follows:

· Legal Expenses $1,757,484

· Legal Proceeding Cost Recovered: 964,119

· Nett Legal Expenses for Disciplinary Proceedings: 793,365

IF we momentarily ignore the recovered amounts (i.e. in which SMC ordered the guilty doctors to pay legal costs incurred by SMC), the total amount of money spent by SMC on law firms is $1,757,484. That’s a lot of money. Had we spent the money procuring legal advice or manpower from the government instead, SMC could probably have comfortably asked for two to three superscale legal officers (equivalent to partners in a law firm) and three to four time-scale legal officers (equivalent to junior lawyers or legal assistants in a law firm) from the Legal Service and ample administrative support working full-time for SMC. And if you consider the point that the Disciplinary Tribunals, Disciplinary Committees and Health Committees only heard a total of 23 cases in 2014, one must consider if SMC could have shaved substantially off the amount of $1,757,484 had it not engaged lawyers but government legal service officers instead to advise it. How many legal service officers do you need to handle 23 cases a year? And how much would the legal service charge SMC on a cost-recovery basis? And it is not as if though SMC is getting sterling advice and services from the lawyers it engages, judging by some of the recent remarks judges have been making in some of the appeal cases that they have heard.

Other cost items that bear mentioning are that for Computer Operations and Maintenance: $597,409 (Note 15). That’s a lot of money if you consider it comes up to 11.5% of the total income of SMC or 7.6% of expenses/costs. Most organisations or institutions do not spend around 10% of their revenue or costs when IT is really not their core business; and it is just to operate and maintain an IT system.

An interesting point to note is that SMC has “Sundry Receivables” (Note 20) of $2,290,755 (FY2015) and $2,005,703 (FY2014). This is not a bad thing if the sundry receivables are indeed recoverable (and there is no reason to suggest that it cannot be). But since SMC is not a sundry shop, this Hobbit hopes the Notes to the Financial Statements in future can describe what these sundry receivables are since this item takes up a hefty chunk of the income/revenue.

SMC’s rental for FY2105 came up to $405,887. That’s not really a lot if you think of the size of the offices but then again when you are so in the red, maybe it’s time to consider a cheaper place than College Road. Or maybe a smaller place?

Finally, let’s have some good news. The good news about SMC is that it has got cash and assets. The Balance Sheet of SMC shows that it has Current Assets of $13,897,777, which includes cash and fixed deposits of $10,351,568. But SMC also has liabilities that have to be met or paid. The leftover “equity” or “Accumulated Fund” came up to $6,135,670. If we make an assumption that SMC continues to make a loss of about $2.5M a year, the money will last us about 2 years and 5 months. After that, SMC runs out of money. (OK, I was kidding about the good news bit..)

So SMC has about 2 years to turn this situation around. This can happen by doing a combination of three things:

· Cut costs

· Raise revenue by raising subscriptions from doctors

· Raise grants from the government

Cutting costs is the most obvious thing to do, as we have described above. And it has to do with manpower costs, legal costs and computer system operations and maintenance, since these are the big ticket items. The rest wouldn’t move the needle much.

Raising revenue, whether from the government or from doctors, should not be done until SMC has shown it has done all it can on cutting costs without jeopardising the mission of SMC, which is the upholding of medical ethics and professionalism in Singapore. Because whether you take doctors’ or the taxpayers’ money, we need to see good accountability and stewardship from SMC.

In any case, just for everyone’s information, MOH grants only came up to $19,260 in FY2014 and zero in FY2015. So big daddy isn’t about to give SMC a blank or big cheque anytime soon.

Which brings us back to SMC being a statutory board where the majority of members of SMC are appointed by the government and not elected by doctors. Since that is the case, perhaps the government can at least fund 50% of SMC’s operations from MOH’s budget?