UNIVERSITY OF HONG KONGLIBRARY

This book was a giftfrom

Dr. N. J. Miners

GR 2/245/56 H

GOVERNMENT HOUSE*

HONG KONG*

Despatch to the Secretary of State-

Sir, . . . . - • • " • •

I have the honour to'transmit, in accordance*wit!i

Colonial Regulation 267, a copy of the report and certificate-

of the Director of Audit on the accounts of the Hong Kong

Government for the year ended 31st March 1972 and my

comments on it*

I have the honour to be*Sir,

Your most obedient, humble servant,*

GOVERNOR

THE RIGHT HONOURABLE•-* V

SIR ALEC DOUGLAS-HOME, K.T., P.O., D. L., M.P.

Enclosure

c* c* Acct. Gen.D. of Audit

GR 2/245/56 H

Comments by the Finance Branch of theColonial Secretariat on the Report andCertificate of the Director of Audit onthe Accounts of the Hong Kong Govern*ment for the year ended 3Jst March 1972

Para» 3: Delay in replying to matters raised in audit

Steps have been taken to reduce unjustifiable delay*

Para. 4: Advances: Miscellaneous

The basis on which the two seconded officers should pay salaries

tax has been settled. The Foreign and Commonwealth Office is now

seeking the agreement of the Inland Revenue Department on unilateral

-tax relief arrangements* -As soon as the Foreign and Commonwealth

Office confirm the arrangements approval will be sought from Finance

Committee for the Hong Kong tax on allowances which are not taxable

in the United Kingdom, in respect of the two officers to be met from

public funds.

Action is still being taken to recover the other advances although

recovery in some cases is doubtful. *..;«•

Para. 5: Deposits

The subsidiary accounts of the Medical Department Outworks

Scheme have now been reconciled with the control account in Medical

Headquarters and a system which provides for routine reconciliation

has been introduced. The other accounts are in process of reconciliation.

The Waterworks Office reviews periodically records of water

deposits and those remaining unclaimed for five years are transferred

to general revenue.

Para. 7: Asses sment and collection of revenue -Amending legislation'

These cases are under constant review. Amending legislation

has already been effected in respect of some; the remainder will be

included in further more comprehensive amendments to the legislation *

as the opportunity arises.

/Para. 8 ..

ACC, NO,

{ DATE OF JICC, 5. 10. 73~ • ..

CLASS no, \\\fi, f- .;* • ,

AUTHOR N06

- 2 -

•

Para, 8: Arrears of revenue

The Commissioner of Inland Revenue has taken steps to recover

taxes and duties in default* The inctease in arrears of internal revenue

mast be viewed in the light of the substantial increase in the yield from

$1, 008 million in 1970-71 to $1,262 million in 1971-72* The Commissioner

of Inland Revenue has given priority to the recovery of taxes and duties^

in default and reduced the outstanding arrears by $3*841*105 to $17*461* 074^

He is currently discussing the procedural problems arising out o!

computer isatton with the Treasury.

The Waterworks Office has introduced a new systerfi designed tor

ensure that arrears are promptly dealt with and water supplies dis-

continued where appropriate. This and various other difficulties rai&ecl

in this Report should also be eased if it proves possible to use electronic

data processing for Waterworks billing. An earlier effort in this direction-

was a failure. But work on a second attempt is now progressing*.

j.. Subhead 4 Imported tobacco

Overpayments where the refunds of duty exceeded the amount of

duty originally collected have now been collected in fall. The Director

of Commerce and Industry introduced a new system of internal control•*

from 1st August 1971.

Paras, 11-12: Head 3 -Internal Revenue, Subhead 3 Earnings and profits

The Commissioner of Inland Revenue advises that* due to shortage

of experienced staff, the initial progress of the special investigation team

to review property tax liability of the owners of all properties at present

exempt under Section 5{2}{a) of the Inland Revenue Ordinance has been

slower than expected, But on the basis of the work already completed^

he does not expect the additional revenue to be as substantial as was

first thought.

The Commissioner of Inland Revenue, in consultation with the

Commissioner of Rating and Valuation and the Accountant General, hai

now arranged to include the dates of first occupation of tenements, or

the dates from which the payment of rent- started, on certificates in

respect of interim valuations under the Rating Ordinance, The revised

procedure will come into operation in early 1973*

/Para. 14

- 3 ~

Para. 14: Head 4 - Licences and franchises, Subhead 1 Licence...-

Urban Services (26) Hawkers

Public Health and Urban Services Ordinance (Cap. 132) Hawker

By-laws 1972 were resolved on 18th October 1972. The previous difficulty

over the dubious definition of wall stalls has been overcome by the new

By-laws which treat wall stalls a category of fixed pitch stall. They will

now be licensed as the staff situation permits.

Para. 15: Head 4 - Licences and franchises, Subhead 1 Licences «»

. Urban Services - Sky signs

New legislation for the control of these signs is being drafted*

Para« 17: Head 4 - Licences and franchises. Subhead 2 Franchises

airport hire car service

The two franchises were granted to the public car companies as

a result of difficulties in introducing any satisfactory taxi service at the

Airport. These franchises are not exclusive and other public cars and

taxis are free to operate to and from the Airport. The issue of public

car licences has never in fact been determined by tender; and the policy

as a whole regarding these cars is now being re-examined.

Para. 18: Head 6 - Fees of Court or Office, Subhead. 1 Fees -

Immigration (7) Travel documents

The Director of Immigration has now forwarded a revised

procedure for the issue of and accounting arrangements for visas and

extensions of stay granted at the Airport for the comments of the

Accountant General. j

Para. 21: Head 6 - Fees of Court or Office, Subhead 2 Receipts ~

Miscellaneous (28) Other *. •!'

A revised policy on the publication of books by Government officers

and the question of royalty has been proposed* Briefly, officers would be

allowed to retain the fall proceeds from royalties on books they have

written, unless there are special reasons to the contrary. If the

Government should decide to take over the publishing right, it would

pay an appropriate honorarium to the author* The present 30% levy on

royalties from text-books would be discontinued, but the Government

would retain the right to levy a percentage on the proceeds in any

particular case.

/The ...

_ 4 -

The Director of Education is being consulted on the possible need

to introduce safeguards against books written by officers in the Education

Department being regarded as official text-books* When adequate safe- '

guards have been agreed, the revised policy will be promulgated*

Pa ra s. 22 ~23 .̂-Head-J?—$&&&?» Revenuey SqtofaegtJrfrC

The new accounting system referred ta in the comments a

paragraph 8 provides a completely new set of control accounts for

billing and has already resulted in improvements

The difficulty in reassessing consumption levels of salt water atr

regular intervals arose from shortage of staff* The installation of cheek-/

meters is expected to be completed shortly and salt water consumption?

can then be reassessed and billed within the next few months*

Para, 24: Head 11' - Revenue from Interest^ Landsf Rents,, etc* - Lands!,,

Subhead 3 Lands not leased (permits for encroachments^etc> |

The position remains as recorded by the Director of Audit* /

Para. _25; Head11 - Revenue from Interest, Lands, Rents» etc. - Renta^

Subhead 14 Resettlement rents

The delay in letting vacant factory units was in part due to the

time necessary to amend loopholes in the lease documents. Tenders

for the Yuen Long factory units were invited in December 1972; and '**

the number of vacant shop premises has been reduced from 341 to 134

following invitations to tender in July and September 1972* The remainder

will be offered for tender as the population in the estates, in which they

are situated increases* \

Paras* 29 and 30: Transport - General

The proposal to introduce a Transport Controller is now being

reconsidered.

Meanwhile, the Vehicles Allocation Committee which is charged' •

with considering applications for additional vehicles from departments,

has examined the utilization of existing vehicles and has caused vehicles

to be re-allocated between departments where circumstances justified*

For the draft Estimates 1973-74, the Committee asked departments to v

submit detailed returns showing utilization of their existing vehicle sr* • . ,.

regardless of whether or not they required new vehicles. The Committee

was then able to examine the overall utilization of the Government fleet

and to consider additional requirements in the light of this examination.

- 5 ~

Para, 31: Under-utilization of department transport services

The Director of Agriculture and Fisheries reports that the under-

utilization of the vehicle operating between Headquarters and Tai Lung

Farm was due to frequent breakdowns. This vehicle has now been

replaced, and the average number of passengers carried has risen to

seven per trip.

The District Commissioner, New Territories, reports that the

under-utilization of the vehicle operating between South Kowloon Magistracy

and District Office, Yuen Long, was due to its being unsuitable for the

purpose* It has been replaced by a mini-bus and the number of passengers

carried has increased to an average of five per trip.

Paras. 32 and 33: Police and Prisons Departments transport

The question of charging is under consideration with the .

Commissioners of Police and of Prisons.

Para. 34: Social Welfare Department transport

Disciplinary action against those responsible has been proposed.

Para. 35: Leasing of office accommodation

Current usage and space entitlements are scrutinised carefully

whenever applications are received for additional accommodation. As

such applications are received frequently from most major departments,

current use of office space is under virtually continuous review.

Of the particular examples quoted, Beaconsfield House was

built particularly to re provision the canteens and messes concerned.

The Missions to Seamen Building presented special problems because

of its peculiar design. It is now being converted into a nurses1 hostel.

Para. 36: Fitting out of leased office accommodation

A number of changes will be introduced shortly with the object

of reducing the time between renting accommodation and completing

the fitting out. The main difficulty has been to find an appropriate

compromise between competitive tender procedures and the need for

greater speed. •

/Para. 37 ...

~ 6 -

Para. 37: Quarters

The Commissioner of Police advises that the reason for not

allocating most of the vacant departmental quarters was that they were

station quarters or quarters in the Police Training SchooL They

remained unoccupied for short periods because of difficulties experienced^

in posting officers to the stations, the Force being substantially under*-

strength, ;

The position on illegally occupied police quarters is tliat tie-

former police officers concerned are now permitted to apply for

alternative accommodation in low cost housing within the quota reserved

for Government servants. -

Para. 38: Commerce and Industry Department inventories

The department has now formed a special team to make a complete

physical check of all departmental offices and quarters with a view to

preparing accurate and up-to-date inventories*

Para« 39: Police inventories

All inventories have now been completed.

Para» 40: Head 22 - Agriculture and Fisheries Department

Fisheries Research Vessel "Cape St» Mary11

The Director of Agriculture and Fisheries recognises that thel!Cape St. Maryn is unsatisfactory in many respects. He is studying

proposals for a replacement.

In the meantime, he is considering with the Director of Marine

a possible change in the repair and overhaul system of the "Cape St.

Mary11 designed to increase the vessel1 s time at sea.

Paras. 41 and 42: Head 26 ~ Colonial Secretariat, Subhead 11

Festival of Hong Kong 1971(1) Contribution

Due to an oversight on the part of the Co-ordinatorf the suggestions

made by the Director of Audit in 1969 were not brought to the attention of- ^. ' . • ' * V ' • ' ''

officers working on the 1971 Festival. The Co-ordinator has issued. v

instructions regarding,them for the 1973 Festival.• ' . »• •* . - .,., • '* . . ' • •

. /Para. 44

- 7 -

Para, 44: Head 48 - Legal Aid Department

The Director of Legal Aid has instituted a regular review of his

outstanding accounts. He has introduced a new set of accounting procedures

and reports that the standard of accounting has improved* Of the major

difficulties the Director of Legal Aid is experiencing, additional staff has

been provided and the Department is due to move into larger accom-

modation in mid-1973*

Para. 45; Head 49 - Marine Departments Subhead 7 Maintenance (4)

Minor alterations and repairs

Because of the heavy workload in the Dockyard, the Director

*f Marine has not been able to keep records up-to-date. In consequence,

he has sought additional staff. The issue of stores to jobs already

certified as completed arose because materials already obtained for

some jobs which had been delayed, were used for other urgent jobs to

save time in requisitioning. Issue vouchers were later raised to

replenish materials for the delayed jobs. The Director has confirmed

that this practice has been discontinued.

Para, 46; Head 50 - Medical and Health Department, Subhead 15 Provisions

The Director of Medical and Health Services has examined the need

for tigher control over diets ordered for the Castle Peak Hospital. He haf,.

introduced revised procedures which, if properly carried out and the

relevant documents retained,should in future permit adequate audit

verification of the diets purchased* ; r

Para. 47: Head 55 - Police: Royal Hong Kong Police Force

Because of shortage of staff, the Police Inspection Team did not

operate from December 1970 to October 197L The Commissioner of

Police has confirmed that the Team is now functioning properly and

effectively*

Paras. 48 and 49: Head 55 - Police: Royal Hong Kong Police Force,

Subhead 1 Personal Emoluments (332) Detection and plain clothers

allowance s and (340) Technician allowancesf Subhead 2• • . " . . • . *c ' • •

Administration (5) Subsistence allowances

To reduce the possibility of overpaying allowances, the records

of the Police Accounts Office have been mechanised onto punch cards.

The Commissioner of Police is considering with the Accountant General

/a. • *..

- a -

a redesign of the existing form, for home-to-off ice mileage claims so

that it can be processed and checked more easily*

Para. 50: Head 62 - Public Works Department, Subhead 57 ~ Plant

and equipment^

The Directgr^M_.PublicJ^orks^e^rts,ihat_lie has not yetjbeeDt_

able to place an order for a road planar.. The funds provided were based

on a quotation from the local agent for a type which is now no longer

inaimfaetared* He is evaluating a different machine*,-...

Partly because the staff were at that time not familiar with the

new machine and partly because the old paver was still in serviceable»

condition* the new paver finisher was not frecptenfly used in I97CL T&at.

new machine was fully utilized in 1972̂

Para«. 51: Heads 63, 64, 65r 66 and 67 ~Public Works Recurrent anci^

Non-Recurrent * Technical Audit Unit

The Director of Public Works is now reviewing the functions of

the Technical Audit Unite

Paras* 52-53; Head 63 - Public Works Recurrent Maintenance Wbrksr

Because of recruitment difficulties* the number of bills subject

to a full measurement check at present is minimal. The use of private

quantity surveyors is still under consideration*

As regards the maintenance of civil engineering works* the main

problem lies in the difficulty in filling the vacancies in technical posts*

But the sub-departments of the Public Works Department are now carrying

out spot checks of measurements as the staff situation permits*.

Paras> 54-56: Heads 64, 65, 66 and 67 ~ Public Works Non-Recurrent~

Project Estimates and Award of Contracts

A reply has been given* Taking the three points raised

paragraph 55 seriatim -

(a) The. proposal to revise project e stimates

before tenders are called for would be

agreeable if the estimates were generally

inaccurate at the time they were made^

it is the view of the Chaintian of the

Central Tender Board that they are not.

- 9 -

It is the general rise in building costs

since estimates were prepared that has

been responsible for differences between

tender sums and estimates« Finance

Committee has decided by implication

that the Public Works Programme should

proceed despite these increases unless an

increase is so large as to bring in the

question whether the project should be

undertaken at all. In other words, if

additional funds are required to enable

projects to proceed they will be" voted*

In these circumstances, it would be" * * • . . . .

wasteful to divert scarce manpower to

the preparation of revised project

estimates when the tenderers will in

effect do it for the Government when

they prepare their tenders. The

revision of estimates would also delay •

tendering and might in present

circumstances result in higher prices,

(b) The latest estimate does already

determine the Groups of contractors ,

invited to tender. It is not considered

desirable to take a general decision not

to disqualify a tenderer when his tender

exceeds the Group financial limit. The

Director of Public Works, the Central

Tender Board and the Deputy Financial

Secretary are all prepared to consider

awarding a tender in these circumstances;

but since the limits are concerned not only

with the contractors1 technical ability but

also with their financial standing, each

case must be considered on its merits.

/(c) The

- io ~

(c) The Central Tender Board, in

consultation with the Director of

Public Works, recently considered

whether JthaJlatter. shouldJae, invited,

to revise the present limits. They

decided that this should not yet be daoe&.-

Because the limits are concerned wit6^

financial standing as well as technical

competence, they could not* if they

were to be raised, merely be raisa&iife.,

line with the increase in tender prices*

It would be necessary to establish 3$e»-

limits and to invite contractors to apply

to qualify: this would involved searching

inquiries into their financial standings

The Central Tender Board has already

invited the Director of Public Works to

review his procedures for establishing .

contractors1 financial standing (the point

raised in paragraph 56 of the Report).

The possibility of raising the limits will

be reconsidered when this review is

.completed*

Para, 57: Heads 64, 65, 66 and 67 ~ Public Works Non-Recurrent -

Terminated contracts

The point is valid* Finance Committee has recently approved

the waiving of various claims and has authorised the Director of Public

Works to recover from the contractor the sums overpaid in respect ojL

the case quoted*.

/Paras. 58 .*,

- 11 .

Paras. 58 and.59: ..Head* 64^ 65, 66 and 67 - Public Works Non-Recurrent

Buildings - Compensation for Crops

The Director of Agriculture and Fisheries agrees that payments 6f

crop compensation may be excessive in some cases. In consultation with

the District Commissioner, New Territories, and the Commissioner for

Resettlement, he is considering a revised method of assessment*

The District Commissioner, New Territories, has confirmed

that the assessment of compensation in the particular case quoted in

paragraph 59 did not take into account any additional works not approved

by the Building Authority. ~ * ;

Para, 62: Head 67 - Public Works Non-Recurrent: Waterworks,

Subhead 16 Plover Cove Scheme: (1) StagesI and II Works

' .., All the points raised by the Director of Audit were considered at

the time at great length with the Engineers who acted as consultants for

the contract, in a special committee set up to consider the claims, *

The correspondence with the Director of Audit has now been brought

to a close and taking the points seriatim -

(a) Additional indirect charges

Ideally and in principle additional

indirect charges should be the contractors1

actual costs. In this case, the Engineers

advised it would be impossible to determine

actual costs in respect of indirect charges *

for such complex claims. The Engineers

were certain that a lump sum representing

actual overheads would be higher than the

amount resulting from the application of

the percentage formula^

As regards general application to

future contracts, actual costs will be

insisted on where appropriate and. • . . ' • . '" . ' *• /percentage rate's where they are not,

/(b) Additional .*,

- 12 *

Additional financial charges

Legal advice sought separately by

the Engineers and by the Finance Brand*

of the Colonial S^creteriat at theJiime

that financial charges were due to the

contractor under the conditions^ 0S

contract as legitimate expenses*

advice was considered at length

accepted^ with the result that

CommitteeTs approval for an -

payment was not necessary. And once*

the charges were accepted as a legitimate-

expense in respect of claims, it followed

that they should be as close as possible to

what the contractor actually paid (or wouMi

have paid had he used his own capital}*

In fact, the interest he paid on his

borrowings was compounded*

Para* 63: Head 72 - Resettlement Department;Subhead 9 Stores and

equipment -

The Commissioner for Resettlement has introduced improvement*

to ensure better financial control* •i -~sParas.64-65: Heads 76, 77 and 78 - Subventions j

The main task still confronting the Working Party is to draw up

rules for the administration of social welfare, miscellaneous ami

educational subventions, having regard to approved policy. It is proposed!

to reconvene the Working Party in March 1973, by which time the work

involved in preparing the 1973-74 draft Estimates will have been completed*..

The Hong Kong Tourist Association has been told to keep to the

conditions for the control of expenditure. The Association has now*

clatified the various sources of fiindsffor transfers in the account*-

for 1968-71* * *''

/Para. 6&

- 13 -.

Para. 66: Housing Loans $526, 579,773, 78

A bank loan of $489, 000 to the Mount Parker Road Co-operativfe

Building Society was approved and a contract for completing the work

was signed on 23rd August 1972. It is expected that the occupation permit

will be issued in March 1973.

Finance Branch, Colonial Secretariat.• •* * • ..... • .... *

9th January 1973.

XD1717SL?

IHKP] 354.200723 H7

XD1717flb7

354*200723Hong Kong. Colonial Secretariat«Finance Branch*

Date Due