XN000022-1978-07-14 — Page 5

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FRIDAY, JULY 14, 1978

14. IN CONNECTION WITH THE AUDIT OF THE SCHOOL'S ACCOUNTS TO 31 MARCH 1974, 31 MARCH 1975 AND 31 MARCH 1976, RESPECTIVELY, THE THEN PRINCIPAL AND SUPERVISOR, SISTER LEUNG, FURNISHED A CER IFICATE TO THE IR PROFESSIONAL AUDITORS ON EACH OCCASION PURPORTING TO SHOW THAT NO PROFIT OR LOSS AROSE TO THE SCHOOL FROM ANY SALE OF TEXTBOOKS, EXERCISE BOOKS OR UNIFORMS, ETC. (SEE PARAGRAPH 10 ABOVE).

15. PRIOR TO THE INSPECTION OF THE SCHOOL'S ACCOUNTS IN 1977, THE EDUCATION DEPARTMENT HAD NO REASON TO QUESTION THE AUTHENTICITY OF THE POSITION INDICATED ABOVE. THE DEPARTMENT ALSO DID NOT HAVE THE POWER TO REQUIRE THE SPONSORS TO PRODUCE (OR TO MAINTAIN) ACCOUNTS OF ANY TRADING OPERATIONS CONDUCTED BY THEM. (NOTE: SINCE 21 JUNE 1978, UNDER THE CODE OF AID, THE DIRECTOR OF AUDIT HAS THE POWER TO EXAMINE SPONSORS' ACCOUNTS AND RECORDS). NOTWITHSTANDING THE FOREGOING, AND IN THE LIGHT OF THE EXTRA BANK ACCOUNTS AND DEPOSITS REFERRED TO IN PARAGRAPH 8, AND THE ERRORS AND OMISSIONS SPECIFIED IN PARAGRAPH 11 ABOVE, THE INSPECTION TEAM PROCEEDED

ON THE PREMISE THAT THE TRADING TRANSACTIONS HAD INDEED BEEN CARRIED

OUT BY THE SCHOOL INSTEAD OF THE SPONSORS. THE SPONSORS DID NOT

DISSENT FROM THIS ASSUMPTION.

16.

NO ACCOUNTS OR RECORDS WERE KEPT OF SALES OF TEXT-BOOKS, EXERCISE BOOKS OR UNIFORMS (EADGES) ETC., SOLD BY THE SCHOOL, OR OF TRANSFERS OF MONEY BETWEEN THE SCHOOL AND THE SPONSORS. HOWEVER, THE RECEIPTS AND PAYMENTS ACCOUNTS RECONSTRUCTED BY THE SISTERS WERE MADE AVAILABLE TO THE INSPECTION TEAM. THESE

RECONSTRUCTED ACCOUNTS TOGETHER WITH THE SISTERS' FURTHER

EXPLANATIONS, ENTRIES IN THE VARIOUS BANK STATEMENTS, AND

INVESTIGATIONS INTO THE ALLEGATIONS MADE BY A DELEGATION OF TEACHERS TO THE EDUCATION DEPARTMENT, ENABLE RELEVANT

CONCLUSIONS TO BE DRAWN. THESE CONCLUSIONS ARE INCLUDED IN

PARAGRAPHS 17-19 BELOW.

17. PAYMENTS OF TWO SUMS WERE MADE TO THE SPONSORS, NAMELY, $70,000 IN 1975 AND $60,000 IN 1976 (A TOTAL OF $130,000), ÎN IN PART REPAYMENT OF THEIR ADVANCE OF $283,395.27 TOWARDS THE SCHOOL'S BUILDING COST REFERRED TO IN PARAGRAPH 8 ABOVE, LEAVING AN OUTSTANDING BALANCE OF $153,395.27 (SEE PARAGRAPH 21 BELOW).

/18. IT WAS