TNAG-0760-FCO40-964-Annual-accounts-of-the-Hong-Kong-Government-for-1977-1978 — Page 143

INTRODUCTION

The audit of the accounts of the Hong Kong Government is carried out under the terms of the Audit Ordinance, which provides inter alia for the appointment, tenure of office, duties and powers of the Director of Audit, for the submission of annual statements by the Director of Accounting Services, for the examination and audit of those statements by the Director of Audit, and for the submission of his report thereon to the Governor. The statements required by Section 11 to be rendered by the Director of Accounting Services were received within the statutory period prescribed and have been examined and audited in accordance with the Ordinance.

2 Scope of Audit. The audit is conducted in accordance with a programme of work which is determined annually and which is intended to provide an overall assurance of the general accuracy and propriety of Government's financial and accounting transactions and not to disclose each and every accounting error or financial irregularity. With the considerable volume and variety of Government revenue and expenditure, my examination of the accounts is of necessity carried out by means of selective test checks and in-depth reviews designed to indicate possible areas of weakness, reliance for detailed checks on the regularity of the accounts being placed largely on the systems of internal control operated by individual departments.

STATEMENT OF ASSETS AND LIABILITIES

3 Deposits and Advances. The amount of $30,346,678.90 shown in the Statement of Assets and Liabilities under Deposits, Public Works Department, Contract Retentions, includes $2,218,269.56 in respect of re-entered contracts which is likely to be transferred to revenue in due course. The amount of $149,164,944.83 shown under Other Deposits, Miscellaneous, includes $589,594.98 which would have been transferred to revenue had the departments concerned carried out appropriate reviews before the closing of the accounts. As in previous years many water deposits remain unclaimed, although depositors have been advised that refunds are due to them.

4 The amount of $31,621,356.59 shown under Advances, Miscellaneous, includes a sum of $253,968.27 relating to the affairs of a company now in liquidation, full recovery of which appears to be doubtful, as well as items totalling $107,168.00 which are likely to be written-off. It also includes $283,040.27 which because of delay in effectively analysing outstanding balances, was not cleared to expenditure until the current financial year. A satisfactory analysis and/or reconciliation has not yet been rendered in respect of Advances, Treasury, Personal - Salaries, $6,959,462.90.

STATEMENT OF RECEIPTS AND PAYMENTS

5 Arrears of Revenue and Appropriations-in-Aid. As at 31 March 1977, arrears of revenue, together with arrears of receipts classified as appropriations-in-aid, were reported as totalling $277 million, of which $177 million was still outstanding three months later, the increase of $31 million in the latter amount over the corresponding figure in the previous year representing a percentage rise broadly in line with that of overall receipts of revenue and appropriations- in-aid. The major element of the figure as at 30 June 1977 was the arrears of Internal Revenue ($130 million), reflecting the growth in the number of tax assessments and in the revenue collectable from this source. Of the remainder, $20 million was accounted for by Fines, Forfeitures and Penalties ($12.9 million) and Judiciary appropriations-in-aid ($7.1 million), these arrears stemming to a large degree from the situations to which I refer in paragraphs 8 and 9 below. Other major constituents of the arrears related to Water Charges ($5.6 million), revenue based Fees and Receipts ($5.8 million) and General Rates ($9.8 million). This last figure showed a rise of 32% over that of the previous year, and whilst the increase derived in part from the greater revenue demanded, there is evidence that it might also have been affected by the enactment of the Small Claims Tribunal Ordinance. This Ordinance came into force on 1 October 1976 and recoveries of rates in cases in which the arrears did not exceed $3,000 were delayed whilst changes in procedures were introduced to comply with the provisions of the new law.

6 Amending Legislation. Cases still remain where amending legislation is required to safeguard the collection of revenue and appropriations-in-aid or to give legal effect to methods of assessment currently in use. As in previous years, administrative authority has been accepted in certain cases for existing methods of assessment to continue pending the amending legislation and a list of those cases has been sent to the Secretary for Administration.

REVENUE

7 Head 3 - Internal Revenue. Subhead 070. Stamp duties. Audit examination of the documentation of a series of share transactions, involving the acquisition of a private company and a subsequent public issue, brought to notice that the value of the shares originally acquired by the party concerned, had been underassessed for the purposes of stamp duty and that follow-up action to obtain payment of stamp duty on certain subsequent instruments had also been overlooked. The undercharges, amounting in all to over $87,000, have now been collected and I have been informed by the Collector of Stamp Revenue that he has issued instructions designed to improve the internal control procedures and to prevent a recurrence of similar omissions in the future.

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