TNAG-1415-FCO40-1896-Public-finance-in-Hong-Kong-1985 — Page 144

surpluses however the Director of Social Welfare has in granting the subventions for 1985-86 made a 5% reduction in the staff cost element of the standard costs and made conditional the subventions for posts that have not been filled. Whilst this will no doubt slow down the rise in the level of surpluses, it does not in my view present an effective solution to the problem.

81.

A recent audit review of the position has confirmed the findings of the Director of Social Welfare and has indicated that for the two years 1982-83 and 1983-84, the introduction of the standard cost subvention system, including the interim arrangements, had brought about surpluses in excess of $26 million in the voluntary organizations' accounts.

82.

Standard costing, as a means of management control, involves the determination by management of standards of efficient operation and the relevant necessary expenditure. However, for the standard cost subvention system, the use of mid-point salaries means that the standard costs obtained represent only a rough and ready measure and not the expenditure which is necessary to achieve efficient operation. It has resulted in substantial surpluses remaining in the hands of the voluntary organizations for which little use has been made to date and could well lead to Government financing inefficient operations.

83.

Whilst the long-term solution must lie in more accurate standard costs in order to reduce the level of surpluses, I have invited the Director's attention to the example of the administration grant under the Code of Aid for Secondary Schools. The grant is used to meet the cost of administrative staff employed by the aided schools and is also assessed based on mid-point salaries and is paid as a lump sum to be used at the schools' own discretion. However, subject to a prescribed amount which the schools can retain as a reserve, the surpluses are recovered annually. The system apparently has the same flexibility as the standard cost subvention system but has the added advantage of ensuring that surpluses in the hands of the schools do not build up unnecessarily. I have suggested that the Director give consideration to this approach so as to reduce the amount of surpluses accumulated by the voluntary organizations.