the dangers associated with their work. He thought that the existing practice was a sensible way of funding the Police and Fire Services Department welfare funds.
7.71
The Deputy Financial Secretary, on being asked why the policy review suggested in 1971 was not carried out, explained that no further action was taken because it was apparent that the Finance Branch's view was not going to prevail.
7.72 Conclusions and Recommendations. The Committee are concerned that the sum of $7.2 million was incorrectly credited to the Police Welfare Fund instead of to general revenue and that, notwithstanding the fact that the first legal opinion on this irregularity was offered in 1963, earlier action was not taken to regularize the situation.
7.73 The Committee accept that in the Royal Hong Kong Police Force and in the Fire Services Department there are special circumstances with regard to morale which justify the exceptional arrangements whereby welfare funds are made up. The Committee are of the view therefore that the right way forward is to regularize the situation on the basis of the present practice. The Committee note that the Commissioner of Police accepts that this practice is inconsistent with the law as it now stands and that amendments to the law are being considered. The Committee wish to to be informed of the progress in this matter.
SOCIAL WELFARE DEPARTMENT
7.74 Paragraphs 76–83. The accumulation of unexpended subventions in the hands of voluntary organizations under the standard cost subvention system. Commenting on the Director of Audit's report concerning the standard cost subvention system, the Director of Social Welfare said that the measures introduced in 1984-85 to reduce the surpluses in the voluntary agencies' accounts, referred to in paragraph 80 of the report, were interim measures pending a longer term solution to the overall problem of large surpluses lying idle in the hands of voluntary agencies. She agreed entirely with the Director of Audit that a better and more accurate basis must be devised under the standard cost subvention system for assessing the requirements for personal emoluments.
7.75 The Director of Social Welfare did not think that the use of mid-point salaries in itself encouraged inefficient operations. She said the standard cost approach was designed from the outset to be broad brush. Fine tuning was not contemplated; in this way the agencies would have as much flexibility as possible in the use of their resources. She assured the Committee that through regular liaison visits by her staff to service units operated by the subvented welfare agencies, she did have a means of ensuring that there was an adequate level of service. If any unit provided a less than satisfactory standard the Social Welfare Department would assist the agency to make improvements.
7.76 The Director of Social Welfare said that a more detailed review of the implementation of the standard cost subvention system would be completed by her department by the end of 1985. In the light of this review, it should be possible by the start of the financial year 1986–87 to reach a decision on the best basis for assessing future personal emolument requirements thereby preventing an accumulation of large surpluses. The proposal from the Director of Audit, which was modelled on the Code of Aid for Secondary Schools, was one measure that could be considered.
7.77 On being asked what alternatives she had under consideration, the Director of Social Welfare said that one possibility would be to vary the percentage of total personal emoluments to be given to the individual voluntary organizations. Under this method a service which was well established might require salaries above the mid-point, while a new service might require salaries at the bottom of the scale. She added that experience indicated that the amount of personal emoluments required varied from 69% to 109% of the standard cost.
7.78 The Committee asked whether in the current review there were any plans to recover surpluses from the voluntary organizations. The Director replied that when the policy on the standard cost subvention system was announced, the Government gave an undertaking that any surpluses would not be clawed back but would be kept in a reserve account to be used with the approval of the Director of Social Welfare. She indicated that a decision to claw back surpluses or to re-deploy them elsewhere would mean a change of policy and also call for consultation with the voluntary organizations. In general the organizations might not object to this provided that an agreement could be made as to where the surpluses would be put.
7.79 The Director of Social Welfare estimated that the surpluses lying idle in the hands of the voluntary organizations amounted to at least $35 million. Individual organizations had applied for some of their surpluses to be used on various projects but these had not been approved pending determination of a consistent policy on how the surpluses should be used. It was not so much the capital funding that was a matter of concern, but that when a new capital project was approved there were usually recurrent implications. These could be very heavy. A number of proposals for using the existing surpluses were currently under consideration with the Finance Branch of the Government Secretariat.
7.80 Conclusions and Recommendations. The Committee are of the view that with the use of mid-point salaries the costs determined under the standard cost subvention system represent only a rough and ready measure.
7.81 The Committee note that a more detailed review of the implementation of the standard cost subvention system will be completed by the end of 1985. The Committee recommend that the present method of determining standard costs be critically reviewed so that they provide an accurate measure rather than a rough and ready measure and that qualified accounting staff should be employed in this review.
7.82 The Committee note that the Director of Social Welfare is developing a policy for using the surpluses accumulated in the past and that a review would be completed at the end of 1985. The Committee wish to be informed of progress in this matter.
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