TNAG-1415-FCO40-1896-Public-finance-in-Hong-Kong-1985 — Page 216

The aud

INTRODUCTION

the accounts of the Hong Kong Government is carried out under the terms of the Audit Ordinance, which provides 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 as the President of the Legislative Council. The statements required by Section 11 to be rendered by the Director of Accounting Services have been examined and audited in accordance with the Ordinance.

2. Scope of Audit. My 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 the 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, this examination of 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.

3.

STATEMENT OF RECEIPTS AND PAYMENTS

REVENUE

Arrears of Revenue. As at 31 March 1985 arrears of revenue were reported as totalling $2,204 million of which $1,505 million was listed as still outstanding at 30 June 1985. The increase in the arrears at the latter date over the corresponding figure in the previous year represented a rise of 12%.

4. The major constituents of the arrears of $1,505 million at 30 June 1985 related to-

Internal Revenue

Fixed Penalty System (Traffic Contraventions and Criminal Proceedings)

$1,327 million

$93 million

5. The arrears of $1,327 million relating to Internal Revenue reflect an increase of $146 million over the reported arrears at 30 June 1984. Of the amount of $1,327 million, $1,256 million related to earnings and profits tax representing an increase of 12.8% over the corresponding figure in the previous year. The greater part of the arrears of earnings and profits tax was attributable to the substantial amount of profits tax in default, caused in part by the tight liquidity situation still being experienced by some businesses and more particularly by the difficulties of a number of real estate companies and related enterprises. Over 51% of the arrears of earnings and profits tax relate to tax due in 1983–84 and before. The 49% of the arrears of earnings and profits tax which relate to tax due in 1984-85 totalled $607 million, reflecting an improvement over the corresponding figure in the previous year.

6.

The arrears of $93 million relating to the Fixed Penalty System (Traffic Contraventions and Criminal Proceedings) are commented on in paragraphs 23 to 24 below.

7.

Fees for contractual services rendered by the police forces and the Fire Services Department. Section 39(2)(b) of the Police Force Ordinance provides that all sums paid for the hire of police officers should be credited to the Police Welfare Fund and Section 18(b) of the Fire Services Ordinance provides that all sums paid for the services of members of the Fire Services Department detailed to do special duties under Section 23 of the Ordinance, should be credited to the Fire Services Department Welfare Fund. In a recent audit review of the legality and appropriateness of crediting the fees to the welfare funds, it was revealed that during the nine year period from 1976 to 1985 $7.2 million was incorrectly credited to the Police Welfare Fund instead of to the general revenue. The review also brought to notice an unresolved and long standing issue concerning the appropriateness of crediting the fees to the welfare funds as permitted in the Ordinances when the cost of providing the services giving rise to such fees is borne by the general revenue.

8. The $7.2 million incorrectly credited to the Police Welfare Fund relates to the hire of members of the Auxiliary Police Force who, according to a Legal Department opinion given in 1963, are not police officers as defined in the Police Force Ordinance and therefore the fees received from the hire of members of the Auxiliary Police Force should not have been credited to the Police Welfare Fund. The legal opinion meant that all such fees would have to be credited to the general revenue but in 1967 it was decided to use only police officers for the contractual services previously undertaken by members of the Auxiliary Police Force and so it became correct to continue crediting the fees to the Police Welfare Fund. However, in 1976 the use of members of the Auxiliary Police Force for contractual services was resumed but, as the previous legal opinion had been forgotten, the fees for their services were again incorrectly credited to the Police Welfare Fund. In response to my report on the audit review, the Commissioner of Police recently informed the Secretary for Security that he did not accept that the revenue derived from the hire of members of the Auxiliary Police Force should legally go to the general revenue but considered that if there were any shortcomings in the existing legislation then the law should be examined with a view to amendment.

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