Accounting and Auditing

Watchdog urges Hong Kong welfare officials to scrutinise spending by NGOs as deficits increase nearly 60 per cent

Audit Commission report also highlights how underperforming groups continued to receive full public funding while some agencies misused grant money

PUBLISHED : Thursday, 23 November, 2017, 11:42am
UPDATED : Thursday, 23 November, 2017, 11:45am

Welfare officials have been urged to step up supervision of how taxpayers’ money is spent by non-governmental organisations after the annual deficits the groups incurred increased by nearly 60 per cent to more than HK$57 million (US$7.3 million) in the previous financial year.

The soaring deficits were revealed in an Audit Commission report released on Wednesday. The document also highlighted how 14 subsidised organisations continued receiving public funding in full over the past five years despite their persistent failing performance, while other agencies abused grant money to pay for overheads and self-financing activities.

In response to the audit report, Secretary for Labour and Welfare Law Chi-kwong said the Social Welfare Department would set up a task force to review the grant system, with the findings and recommendations in the audit report being taken into account.

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The current subsidy system was rolled out in 2001, providing a lump sum grant to NGOs that covered part of the salary and employee welfare expenditures and other administrative charges that the non-governmental organisations could not fully afford through their service fee income.

In the year 2015/16, 165 of the 170 NGOs subsidised by the Social Welfare Department voluntarily joined the lump sum grant scheme, receiving a total of HK$11.8 billion. The sum increased to HK$12.5 billion in the year 2016/17.

While the grant system allows NGO managements “autonomy and flexibility in the deployment of subvention resources to meet the service needs”, the audit report found that more than 18 per cent of the subsidised service providers struggled to make ends meet.

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A total of 31 NGOs recorded an average deficit of HK$1.85 million in using the grants in the year 2015/16, including 14 that reported a loss for the third consecutive year.

The worst of these 14 cases – an organisation named as “K” in the report – recorded a deficit of more than HK$10.6 million in the year 2015/16, when it saw a 46 per cent or HK$35.2 million increase in salary expenditure.

In that year, the number of employees at K with an annual salary between HK$500,001 and HK$1 million increased from 76 to 133, while those paid more than HK$1 million per year increased from 15 to 19.

Moreover, K was found to have used the grant money for social services to cover its head office overheads of HK$22.2 million, which was considered “a cause of concern” in the report.

The Social Welfare Department was also criticised for subsidising 14 agencies in full despite them failing to meet their performance targets for five years in a row since 2013.

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The Director of Audit called on the department to ascertain the reasons for the deficits, to immediately require disclosure of salaries for staff in the top three tiers of subsidised NGOs, and to instigate timely action against persistent underperformance.

In general, the commission considered this an “opportune time” for the government to review and optimise the lump sum grant system. The last review of the system was conducted in 2008.

Social welfare sector lawmaker Shiu Ka-chun welcomed the suggestions by the Audit Commission and said he would meet the agencies on Monday to discuss the report.

Steven Ngai Sek-yum, head of Chinese University’s social work department, said the abuse of grant money for overheads could be reduced if there was a more standardised salary scale.

Ngai said: “On the one hand, some NGO managers might not be well trained in financial management. On the other hand, their power in resource allocation – when unsupervised – might lead to an inverted triangle shape in salary allotments,” Ngai said.

The Legislative Council’s Public Accounts Committee decided on Wednesday to conduct public hearings regarding the report.

Committee chairman Abraham Razack said: “[The grant system] was introduced quite a number of years ago to the extent that the services, quality and everything needs to be reviewed and studied.”

Razack said that the committee would call on social welfare officials, including the minister, to attend the hearing and explain the grant policy along with other departments.

Additional reporting by Kimmy Chung