Page 13.
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⚫ontained in the telegrams mentioned in paragraph 45 above and the particulars set out in the two succeeding paragraphs, I am not fully satisfied that the present arrangements do conform with the Secretary of State's requirements. It is assumed, however, that the matter will be fully ventilated in the despatch which, it is understood, will shortly be addressed to the Secretary of State and I shall inform you of the outcome in due course.
(f) Procurement and Distribution of Yarn
49.
is stated in paragraph 30 of this report, the activities of the Industries Section include responsibility for the purchase and distribution of yarn for the local textile industry. It appears that the first consigments of cotton yarn were purchased from SCAP and, together with certain textiles imported from Japan, were paid for through the Crown Agents for the Colonies in U.S. dollars out of dollar balances made available for this purpose by His Majesty's Government, to which reference was made in the Secretary of Stato's Circular telegram saving of 26th August, 1947. These payments were charged, and all receipts from sales of the yarn were credited, to the Industries Section Suspense Account.
50.
During the examination of the receipts and payments of the Suspense Account, it was revealed that cotton yarn had also been purchased in China and that payment had been made locally in Hong Kong dollars. In November, 1947, it came to the notice of this Department that Government had purchased, locally, certain shipments of cotton yarn which were imported by a local firm from the United Kingdom, This yarn was paid for at "10% above the C.I.F. cost in Hong Kong plus bank focs etc." In response to enquiries by my predecessor, the Acting Director stated that the payments were being charged to the Industries Section Suspense Account and were made on his "general authority to procure and supply cotton yarn to the textile industry" My predecessor expressed the view to the Accountant General that this expenditure should not be charged to the Industries Section Suspense Account, which had been operated originally for the purpose of financing trade between Hong Kong and Japan. A new Suspense Account for Japanese Trade was opencã subsequently by the Accountant General with effect from 6th February, 1943, and transactions for cotton yarn purchased from countries other than Japan continued to be passed through the Industries Section Suspense Account.
51.
My predecessor also pointed out that, as the purchases of cotton yarn involved expenditure of public finds outside the authority of the general warrant, he considered that the approval of Finance Committee should be sought, and the authority of the Secretary of State obtained, for the opening of the new Suspense Account.
52.
It is understood from correspondence with the Director, in connection with the purchases of the cotton yarn imported from the United Kingdom (referred to in paragraph 50 of this report) that arrange- ments were made for this yarn to be distributed by the Hong Kong Manufacturers Cotton Yarn Finance and Distribution Organisation "as selling agents without commission" for the Supplies, Trade and Industries Department, and that prices were to be "averages based on 21% on landed cost" which was intended to cover storage and insurance paid for by Government. It was pointed out by my predecessor that the oncost charge should be sufficient to cover, in addition, departmental charges and a reasonable interest rate on the outlay involved. The Director agreed to submit a return, after disposal of the first shipment, to show whether all charges plus interest had been covered but this return has not yet been received.
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