1. 1 Forums on Lump Sum Grant Review Forum One 18 March 2008

2. 2 1Progress Update LSG Steering Committee Meeting - 3 March 2008 Increase of $200M in recurrent subventions for NGOs in 2008-09 Concerns of subvented agencies not on LSG mode

3. 3 2 Today’s Discussion: LSG Review 2.1Spirit & basic principles of LSG 2.2Irregularities and inconsistencies in actual implementation 2.3Complaints-handling mechanism

4. 4 LSG Independent Review The Terms of Reference of the Committee: 1.To review LSG with a view to assessing its overall effectiveness and identifying areas and scope for improvement covering but not limited to- a)overall implementation; b)flexibility, efficiency & cost-effectiveness in the use of public funds and in service delivery by subvented NGOs; c)the accountability and corporate governance of subvented NGOs; d)the impact of the LSG on the quality of welfare service; and e)the handling of complaints related to implementation. 2.To report findings and make recommendations to the Secretary for Labour and Welfare

5. 5 Spirit & basic principles of LSG Rationale for setting up of the LSG subvention system: To replace the inflexible, complex and bureaucratic Model System and Modified Standard Cost System

6. 6 Spirit & basic principles of LSG 1A commitment of the government to meet service needs 2Introduction of an improved subvention system for NGOs to deliver the services Objectives :

7. 7 Spirit & basic principles of LSG 1Flexibility 2Transparency 3Partnership between SWD & NGOs 4Benchmark approach in allocations With the above objectives, the following basic principles are to be observed:

8. 8 Spirit & basic principles of LSG According to the LSG Manual, “NGOs will be given flexibility in the deployment of funds to meet the service needs….With the exception of a few designated items, NGOs may freely deploy the funds as long as the required objectives, outputs, results and standards are met…….” 1 Flexibility

9. 9 Spirit & basic principles of LSG Flexibility – problems encountered : With FSA, LSG does not allow NGOs to really ‘deploy’ funds in delivering services beyond the FSA scope though they are much needed in the community ----- flexibility only in a narrow sense of deployment of funds on staffing/PE; but not on meeting the service needs which can be changing very fast.

10. 10 Spirit & basic principles of LSG Flexibility – problems encountered : Lot of tedious workload for agencies: (i) Lots of reporting & making justifications on agencies’ expenditures (e.g., on items over 5% variance as compared with the previous year) (ii) Lots of checking/disagreements on ‘recognized’ & ‘non-recognized’ items (e.g., directors’ & officers’ liability insurance) (iii) Lots of checking in ‘preventing’ cross- subsidies for non-LSG activities Agencies not treated as a ‘one-whole’ organization!!!

11. 11 Spirit & basic principles of LSG No transparency on how the resources are allocated to NGOs at all by SWD. Without the transparency, agencies are difficult to formulate their planning, in particular on HR-related matters. 2 Transparency

12. 12 Spirit & basic principles of LSG Transparency Transparency is only required on NGOs’ management, but not on SWD. NGOs are: - Not given the basis for calculating for new services - Not given the basis for calculating resources for new units of existing services - Not given the basis for calculating ‘add-on’ resources - Not given the basis for calculating resources for in-situ expansion - Not given the basis for revised allocations to NGOs subsequent to each adjustment

13. 13 Spirit & basic principles of LSG Original objective of setting up LSG : “…..SWD is committed to introducing a package of measures to both the funding & monitoring of services provided by the subvented sector to meet service objectives…..The improvements made to service monitoring and funding will lay a solid foundation for the Government to work with service providers to improve the welfare planning framework and process.” ------- implying a partnership/collaboration relationship 3 Partnership between SWD & NGOs

14. 14 Spirit & basic principles of LSG No equilibrium partnership relationship is found. Rather, agencies’ goodwill is always ‘exploited’, such as : 1Agencies still suffer from the budget cut by the govt even though there is a benchmark for LSG that has been agreed by both sides at implementation 2Agencies have no ‘say’ even though the govt does not honour their pledge/commitment (e.g., provide welfare planning framework) Partnership between SWD & NGOs

15. 15 Spirit & basic principles of LSG The use of the mid-point allocations and notional staffing establishment being the ‘gist’ of LSG allocations. Problem ----- no review mechanism in face of : (i)the ever changing social & economic environment and community needs which affect optimal staff mix and staff establishment (ii)the growing maturity of the work force of the sector (iii)the ‘market’ demand of different posts 4Benchmark approach in allocations

16. 16 Spirit & basic principles of LSG Proposed measures for improvement: -To reconfirm the spirit and basic principles of LSG and clarify their application in implementation of the subvention system -To set up a platform between the Department and NGOs for better communication ----- to discuss and update on agencies’ needs so as to make adjustment from time to time -To establish a platform for appeal when there are disputes

17. 17 Irregularities and inconsistencies in actual implementation Examples of irregularities: -No supervisory nor clerical support for new ‘add-ons’ -Irregularities on the unit costs for some services when they are contracted to NGOs through different modes -Difficult to integrate the new ‘add-ons’ to the original services since no formula nor calculation basis for the ‘add-ons’ are provided to NGOs

18. 18 Irregularities and inconsistencies in actual implementation Examples of inconsistency: -The existing Grant Code create lots of complication during cross-services or cross-units staff movement, staff deployment & apportion of manpower especially during audit -The approved items for LF Block Grant are unclear ─ difficult for agencies to determine which items should or should not be included in their applications -Different requirement of SWD and HKICPA regarding accural basis accounting and depreciation practices cause extra workload -The inadequacy of funding from Lotteries Fund Block Grant for repair & maintenance -Different benchmark between old & new services (commenced after 1/1/2008)

19. 19 Irregularities and inconsistencies in actual implementation Proposed measures for improvement: -To clarify with NGOs on all the irregularities & inconsistent areas -To set up a platform with NGOs, especially with their accounting staff, on the unclear areas and then to set up a regular meeting for the Finance Branch to communicate with agencies’ staff on SWD’s accounting requirements