:
had taken more than four years of deliberation, without any achievements in terms of insurance premiums saved. The Committee also noted the commitment given by the Deputy Financial Secretary to reconvene the Standing Committee
on
Administration of Subventions and to put forward a proposition to it within six months.
92. In my report for the year ended 31 March 1985 I stated that proposals had yet to be put to the Standing Committee and in his follow-up evidence to the Public Accounts Committee at a public hearing in December 1985 the Deputy Financial Secretary acknowledged that progress had been slow but explained that the subject was a difficult one and a number of policy and practical difficulties still had to be resolved. The Public Accounts Committee noted in their Eighth Report that they remained concerned that the Government was reimbursing in full the cost of the insurance premiums paid by the subvented organizations and could not understand the difficulties attached to taking out a consolidated insurance policy. The Committee were of the opinion that the cost of a consolidated policy taken out by the Government must be less than the total cost of the policies taken out by the individual organizations and attached importance to the implementation at an early date of new arrangements provided these were found to be more cost-effective than the present arrangements. The Committee also noted that it was the intention to reconvene the Standing Committee in early 1986.
93. The latest position is that the Standing Committee on the Administration of Subventions was reconvened in February 1986 and advised that the Government should:
-carry the risk of fire and professional malpractice; and
-continue to subvent premiums for employees' compensation and public liability; but
---negotiate block discount rates on premiums.
With regard to:
-the Government carrying the risk of fire, the Standing Committee agreed to introduce arrangements gradually on a trial basis and to initially carry the risk in schools only and the Director of Education has informed the aided schools accordingly;
--the Government carrying the risk of professional malpractice, the Director of Medical and Health Services is currently devising assurances for professional medical staff based upon the assurances given by the Government to its employees;
-negotiating block discount rates for employees' compensation and public liability, the Deputy Financial Secretary subsequently sought the assistance of the Director of Government Supplies to explore the options to be considered and the Director has suggested that a leading Hong Kong and international insurance broker be nominated to investigate the matter. In the meantime savings in insurance premiums by adopting a consolidated insurance policy have not yet been achieved.
94. Head 58- Government Supplies Department. Subhead 227. Unallocated stores. The Director of Government Supplies is responsible for the procurement of stores on behalf of Government departments for which there is a recurrent need common to a number of departments. These stores are procured in bulk to take advantage of the economies of bulk purchase and to ensure that a stock of such stores is maintained to allow an uninterrupted supply to departments. These stores are referred to as unallocated stores and are held in stock until such time as they are issued on request to Government departments or are sold to subvented organizations or Government contractors. Payments for the purchase of unallocated stores are initially met by the Director of Government Supplies and the cost of the stores is not charged to the recipients until they are issued from stock.
95. The accounting and stock record systems are computerized. Under the present pricing system the unallocated stores are valued at the weighted average price of the stores taken into stock while issues are charged to the recipients at the file price (which is the weighted average price or the highest purchase price in the month, whichever is the lower). An issue variance arises when there is a difference between the weighted average price and the file price. On several occasions since 1984 I have invited the attention of the Director of Government Supplies to the abnormally high issue variances for a number of stores items, noting that they represented a hidden subsidy to the recipients. In the financial year 1985-86 issue variances ranging from 30% to 1 020% were noted. These abnormal issue variances were caused by the incorrect input of purchase prices and the use of incorrect file prices. In one case affecting the Correctional Services Department, a quantity of worsted material was issued at $1.34 per unit instead of the correct price of $47.85 resulting in that department being undercharged $762,000.
96. In February 1986 the Director of Accounting Services completed a survey on the unallocated stores procedures, including a review of the pricing policies, and recommended that the issue price should be fixed at the weighted average price so that issue variances would cease to arise. In response to my enquiries, the Director of Government Supplies has informed me that he has requested the Government Data Processing Agency to amend the computer programs as soon as possible in line with the recommendations made by the Director of Accounting Services. The Director of Government Supplies has also informed me that he will monitor the operation of the revised pricing system and will draw up a new set of accounting, checking and review procedures. In the meantime he has assigned a team to check all stores items where the issue variance exceeds 30% for the months of April to July 1986 and will effect adjustments where necessary.
97. Head 100 – Marine Department. Subhead 121. Contract maintenance. The Government relies on the competitive tendering system for ensuring that it gets a fair and reasonable price for the goods and services that it purchases. The success of the system depends on there being sufficient firms willing to tender, on the tenders being submitted in a
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