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Following is a question by the Hon David Chu and a reply by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, in the Legislative Council today (December 17):

Question:

As the recently appointed Director of Audit (D of A) is a senior administrative officer, which has aroused concern about the independence of the Audit Commission, will the Government inform this Council:

(a) of the statutory, administrative and other mechanisms or measures in place to prevent situations that may give rise to real or potential conflict of interests or favouritism on the part of D of A in discharging his duties, for example, where an audit review conducted by the Audit Commission involves a decision which D of A had made, or had taken part in making, during his service in government departments, or where the controlling officer of an audited body is his relative or former colleague in the civil service;

(b) whether such mechanisms or measures have spelt out how to deal with the situation in which a former D of A may take up employment in a government department or an organization within the purview of D of A after his departure from office; if so, of the details; if not, the reasons for that; and

(c) of the actions to be taken to ensure that such mechanisms and measures are effective in preventing the situation in (a) above, and in handling the situation in (b) above?

Reply:

Madam President,

The Government attaches paramount importance to the independence of the Audit Commission. This matter is beyond question. Article 58 of the Basic Law clearly stipulates that "a Commission of Audit shall be established in the Hong Kong Special Administrative Region. It shall function independently and be accountable to the Chief Executive." Section 9 of the Audit Ordinance further provides that "in the performance of his duties and the exercise of his powers under this Ordinance the Director shall not be subject to the direction or control of any other person or authority." These provisions expressly buttress the independence of the Audit Commission. We firmly believe that this independence is essential for safeguarding the ability of the Audit Commission to carry out its duties effectively.

Part (a) of the question asks how the Government ensures the propriety and impartiality of the Director of Audit (D of A) in performing his duties.

This question involves two aspects. It concerns the statutory and administrative safeguards which are in place. It also concerns the personal integrity of the individual holding the office of the D of A. Prior to the Chief Executive making the appointment, the prospective appointee was put through extensive integrity checking in order to ensure that the integrity and conduct of the person meet the standard required for the post.

The D of A must also comply with all relevant legislations. These include, to name but a few, the Audit Ordinance, the Prevention of Bribery Ordinance and the Official Secrets Ordinance. Section 4 of the Audit Ordinance, in particular, states that "a person who is appointed as the Director of Audit shall hold that office during good behaviour", failing which he may be dismissed or be required to retire from office.

The D of A is also subject to the Civil Service Regulations. All civil servants are expected to uphold a set of core values which include commitment to the rule of law, honesty and integrity, accountability for decisions and actions, political neutrality, impartiality in the execution of public functions, and dedication, professionalism and diligence in serving the community. In the Civil Service Regulations and circulars issued by the Civil Service Bureau, there are guidelines to all civil servants on matters such as avoidance of conflict of interest, acceptance of advantages and entertainment, and declaration of private investments. As in the case of other principal officials, the D of A is required to declare his investments to the Civil Service Bureau on a regular basis. Such declaration is kept on a register of financial interests and is available for public inspection on request.

The Audit Commission also has an internal Audit Manual which governs the professional and ethical standards of its staff. The Manual sets out the code of conduct for staff and provides clear guidelines on matters concerning integrity, credibility, objectivity, independence and accountability in their discharge of duties. These guidelines are strictly adhered to by all staff of the Audit Commission, including the D of A himself.

Apart from the legal provisions and administrative guidelines, public monitoring also plays a crucial role in ensuring the impartiality of the Commission. As is well known, each year the Audit Commission regularly submits to this Council its audit report on Government accounts and value-for-money study reports for scrutiny by Members. All these reports are public documents. Through these reports, members of the public are able to monitor the work of the Audit Commission. This helps ensure that the Audit Commission maintains its neutrality in operation and impartiality in monitoring the work of Government.

Part (b) of the question concerns the administrative arrangements and measures for dealing with the re-employment of a former D of A, either in a government department or in a related organisation, after his departure from office.

On this, the Government already has in place a comprehensive and well-established system. Under existing policy, civil servants are required to seek prior permission from the Government before taking up any outside employment, entering into business, or becoming partners or directors within two years (or such longer period as specified by the Chief Executive) of their retirement, if the principal part of the proposed employment or business is carried on in Hong Kong. This requirement is to ensure that the proposed employment or business will not constitute conflict of interest with the officer's previous employment in the Government. Account will be taken of whether the officer has been involved in policy formulation or decision, the effects of which could have benefited his prospective employer; whether the prospective employer might gain an unfair advantage over competitors because of the officer's previous knowledge; the public perception of the officer taking up the proposed employment, etc.

Where individual government departments have operational reasons to employ retired civil servants, such cases will be similarly considered having regard to whether such appointments may constitute any conflicts of interest.

As with all other civil servants appointed on terms which attract pension benefits, the Director of Audit is subject to the same post-retirement employment control mechanism upon his retirement from the service as set out above.

Part (c) of the question asks what actions the Government will take to effectively prevent favouritism and conflict of interests.

Members will note from the reply to part (a) and (b) of the question that, whilst upholding the operational independence of the Audit Commission, the Government has extensive measures to safeguard the neutrality and impartiality of the Audit Commission in the performance of its duties. The work of the Commission is monitored at all levels through different channels, including internal monitoring, enforcement of legislation and public scrutiny. In case of misconduct by any Audit Commission staff, the matter will be investigated and we will take appropriate follow-up actions in accordance with the relevant laws and regulations.

As regards the processing of D of A's application for post-retirement employment, the Advisory Committee on Post-retirement Employment was set up in 1987 to advise the Government on applications from directorate officers. Each application will be scrutinised by the Government on the advice of the Advisory Committee. Depending on the circumstances of the individual case, the Government may consider imposing an appropriate sanitisation period or restricting the scope of work or business of the applicant to guard against any potential conflict of interest or public perception problem that might arise. Approval will only be granted where there is no impropriety in the proposed employment. Failure to comply with the post-retirement employment control mechanism may result in the individual's pension being suspended.

Ends/Wednesday, December 17, 2003

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