29. A second review team, to review the revenue assessment procedures, was established within the Lands Department in November 1984 with the following terms of reference:
--to arry out a critical review of the existing revenue assessment systems and procedures in the Lands Department;
-to make recommendations for the establishment of reliable systems and sets of procedures for the assessment of
revenue due to the Government under existing land policies; and
to prepare action plans for the implementation of the recommendations.
The review team made its report in March 1985. The report contained a number of recommendations to eliminate mistakes due to misapplication of instructions and weaknesses in checking and review procedures.
30. The recommendations made by the review team were considered in April 1985 by a steering group consisting of the Director of Lands, the Director of Accounting Services and senior professional lands staff and it was agreed that a separate review team would be set up as soon as possible to implement the recommendations and that progress would be monitored in June and September 1985 with a view to bringing the improvements into operation by 1 October 1985. Unfortunately there has been a slippage in the progress of implementation because staff constraints in the Lands Department have prevented the setting up of the review team. The Director of Lands has recently stated that a further attempt would be made to redeploy staff for this purpose later in 1985.
31. To summarize, substantial progress has been made in implementing the recommendations of the review team on revenue collection procedures but there is still some way to go before completion. Not a great deal of progress has so far been made in implementing the recommendations of the review team on revenue assessment procedures, although the problem areas have been identified.
32. In paragraph 6.70 of their Seventh Report issued in December 1984 the Public Accounts Committee noted that although my report for the year ended 31 March 1984 had brought to light no new cases of error, omission or oversight in the assessment and collection of revenue relating to land transactions arising subsequent to their Sixth Report (i.e. cases relating to grants or leases initiated since December 1983) there were many outstanding cases reflecting past failures in procedures. The Committee hoped again that my future reports would not need to produce evidence of new cases or else the Committee would be very disturbed. During recent audit inspections at District Lands Offices however, four new cases as defined by the Committee were revealed, in addition to a number of old cases relating to grants or leases initiated prior to December 1983.
33. All the new cases concerned land exchange entitlements (commonly known as Letters A B) which were issued in lieu of cash compensation for the surrender or resumption of land in the New Territories. Prior to April 1984 Letters A/B could be redeemed either in exchange for land in the New Territories or by surrender for cash at their face value. With effect from April 1984 Letters A/B can also be redeemed by way of a monetization scheme. Under the scheme, currency values are attached to Letters A/B so that they can be used as cash payment for certain land related transactions in the New Territories and a few selected sites in the urban areas. Attached to each demand note for settlement of a land related transaction is a standard letter and application form, informing the payer that payment will be accepted in part, or in full, by way of surrender of Letters A/B, on completion of the application form with details of the Letters A/B the applicant proposes to surrender. The standard letter informs the payer that should any discrepancy or deficiency be discovered in the monetized value of the entitlements, he will be required to make good on demand the amount of deficiency in cash.
34. The monetized value of Letters A/B is calculated by multiplying the area of exchange entitlement by the currency value as at the operative date of the Letters A/B. Recent audit inspections at the District Lands Offices of Kowloon West, Sha Tin and Tsuen Wan revealed four cases where demand notes had been settled by monetized Letters A/B but the date of the Letters A/B had been entered in the application form by the applicant, and checked by the lands staff as the operative date instead of the date of the surrender of the land, resulting in undercollections totalling $2,029,000 plus estimated accrued interest of $291,000.
35. I have invited the attention of the Director of Lands to the errors pointing out that there are weaknesses in the checking procedures for the monetization of Letters A/B. I have requested that prompt action should be taken to recover the undercollections and the accrued interest. I have suggested that in order to prevent a recurrence of similar cases in future, the application form for monetization of Letters A/B should be revised to show clearly a definition of the operative date. I have also suggested that a departmental instruction should be issued to highlight the importance of the operative date in determining the currency value and to remind officers concerned of the need to exercise extreme care in the checking of the operative date. A reply from the Director is awaited but I note that in one of the four cases, immediately after my staff had pointed out the error to the lands staff concerned, a demand note for $228,000 was issued to recover the amount of the deficiency, plus the accrued interest. The demand note has been settled.
36. Heads 7, 8 and 11 – Revenue from Properties and Investments, Land Transactions and Fees and Charges (Director of Engineering Development). The Public Accounts Committee also recommended in their Sixth Report that the full-scale review of the procedures relating to the assessment and collection of revenue to be conducted by the Director of Accounting Services for the Lands Department (paragraphs 25 to 31 above) should also cover the procedures relating to land matters in the Mass Transit Office of the Engineering Development Department.
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