TNAG-1415-FCO40-1896-Public-finance-in-Hong-Kong-1985 — Page 126

32.

In paragraph 6.70 of their Seventh Report issued in December 1984 the Public Accounts Committee noted that although my report for the year ended 31 March 1984 had brought to light no new cases of error, omission or oversight in the assessment and collection of revenue relating to land transactions arising subsequent to their Sixth Report (i.e. cases relating to grants or leases initiated since December 1983) there were many outstanding cases reflecting past failures in procedures. The Committee hoped again that my future reports would not need to produce evidence of new cases or else the Committee would be very disturbed. During recent audit inspections at District Lands Offices however, four new cases as defined by the Committee were revealed, in addition to a number of old cases relating to grants or leases initiated prior to December 1983.

33.

All the new cases concerned land exchange entitlements (commonly known as Letters A/B) which were issued in lieu of cash compensation for the surrender or resumption of land in the New Territories. Prior to April 1984 Letters A/B could be redeemed either in exchange for land in the New Territories or by surrender for cash at their face value. With effect from April 1984 Letters A/B can also be redeemed by way of a monetization scheme. Under the scheme, currency values are attached to Letters A/B so that they can be used as cash payment for certain land related transactions in the New Territories and a few selected sites in the urban areas. Attached to each demand note for settlement of a land related transaction is a standard letter and application form, informing the payer that payment will be accepted in part, or in full, by way of surrender of Letters A/B, on completion of the application form with details of the Letters A/B the applicant proposes to surrender. The standard letter informs the payer that should any discrepancy or deficiency be discovered in the monetized value of the entitlements, he will be required to make good on demand the amount of deficiency in cash.

34.

The monetized value of Letters A/B is calculated by multiplying the area of exchange entitlement by the currency value as at the operative date of the Letters A/B. Recent audit inspections at the District Lands Offices of Kowloon West, Sha Tin and Tsuen Wan revealed four cases where demand notes had been settled by monetized Letters A/B but the date of the Letters A/B had been entered in the application form by the applicant, and checked by the lands staff as the operative date instead of the date of the surrender of the land, resulting in undercollections totalling $2,029,000 plus estimated accrued interest of $291,000.