THE Government has been over-generous in compensating Walled City flat owners, spending about $210 million too much on ex gratia payments, according to the Director of Audit, Mr Brian Jenney. He said officials had failed to adjust the policy for compensating the tenants of the crowded Kowloon eyesore, in which there was a large number of people who owned more than one flat. And the calculation of payments for each premises was complicated by the fact that no proper survey was carried out, even though compensation was to be made according to floor-size. A pre-clearance survey in January 1987 identified 8,880 domestic and 1,045 non-domestic premises. Mr Jenney's inquiry into the Walled City compensation plan focused on the decision to grant an extra payment, on top of the statutory compensation, to enable tenants to find alternative accommodation. He questioned why this payment should have been made to those owning a number of flats, even though payment for only one would have been sufficient to help relocation. Mr Jenney's report tabled in the Legislative Council yesterday also revealed that 259 people owned but did not occupy 694 of the flats. By paying them the relocation compensation for each of their flats, Mr Jenney estimated that $91 million in excess payments had been made. In one extreme incident, an owner claimed compensation for about 100 flats and subsequently received a cash payment of $34.6 million, which Mr Jenney thought was $14 million too much. The Legco Public Accounts Committee will scrutinise Mr Jenney's findings at its meeting next week. Mr Jenney pointed out that a list of the absentee-owners and the number of properties which officials held, had not been submitted to the Special Committee which set down the guidelines for compensation. He also observed that the justifications for, and financial implications of, such payments to absentee-owners were not brought to the attention of the Executive Council nor later to the Legco Finance Committee. Mr Jenney was critical of the administration's failure to review the policy in the special case of the Walled City, an anomaly in Hongkong's history which left a large tract of land considered still to be China outside British control. As there would be clearances involving similar payments in future, Mr Jenney recommended that the Director of Buildings and Lands, Mr Darwin Chen, make changes and noted that Mr Chen had already started to look into the matter. He also suggested that the ''Executive Council and the Finance Committee should be apprised of the findings and conclusions''. Replying to Mr Jenney's criticisms, Mr Chen argued that the Special Committee had known that absentee-owners in the Walled City were aware of the across-the-board application of the extra allowance and that they expected to receive it. Mr Chen said he doubted that even if the specific attention of the Special Committee, the Exco and the Finance Committee had been drawn to the question of multiple-flat ownership, the package would have been modified. Representatives of the Walled City tenants expressed dissatisfaction at Mr Jenney's comments about the Government being overly generous, saying that he was talking nonsense. Mr Cheng Shing-shi, who is camping outside the Walled City protesting about an insufficient compensation package, criticised Mr Jenney as knowing nothing about the hardships of the owners. He also insisted that the absentee-owners should be entitled to the full rate of compensation. Another owner, a 60-year-old woman, also said it was ''heartless for the Government to say such a thing''. Mr Jenney was critical of the Government's failure to conduct a proper exercise on which to calculate the level of compensation. Officials used the flat size most commonly found in the Walled City as a basis for deciding payment. The Buildings and Lands Department conducted a survey in May 1987 of a random selection of five per cent of the premises and found that they were usually about 23.44 square metres. Mr Jenney noted the selection of the mode flat was meant to enable the largest percentage, about 62 per cent, of the owners to obtain at least sufficient payment to buy the smallest Home Ownership Scheme flat. A unit of 35.41 square metres in Kowloon cost an estimated $226,600. Under the compensation package, if an owner's flat is smaller than the mode size, he was expected to make some contribution to the purchase price while resident-owners with units larger than the mode flat would be paid according to a sliding scale to enable them to buy larger HOS units. In his investigation, Mr Jenney found errors in the computation of the size of the mode flat as he observed that sample units included store rooms, toilets and kitchens. He said if due consideration had been given to the definition of a flat, the size of a mode flat would have been 26 square metres. He then estimated that use of this smaller size had resulted in extra payments totalling $119 million. To avoid a similar mistake in future, Mr Jenney recommended that the lands chief ensure that the results of future surveys are accurately analysed. The Secretary for Planning, Environment and Lands, Mr Tony Eason, said the shortcomings in the survey could only have been identified after the event. He also noted that in the circumstances of the Walled City clearance, a full survey was not practicable.