Report of the Working Group on Direct Subsidy Scheme

Report of the Working Group

on Direct Subsidy Scheme

December 2011

Table of Contents

Page

Chapter 1 Introduction 1

Chapter 2 Operation of Schools under the Direct Subsidy

Scheme

Chapter 3 Improvement Measures for the Fee

Remission/Scholarship Schemes

Chapter 4 Strengthening the Governance and Internal Control

of Direct Subsidy Scheme Schools

Chapter 5 Strengthening the Financial Management of Direct

Subsidy Scheme Schools

Chapter 6 Training for School Personnel of Direct Subsidy

Scheme Schools

Chapter 7 Measures to Ensure Compliance of Requirements of

the Direct Subsidy Scheme by Schools

Chapter 8 Status of Li Po Chun United World College of Hong

Kong in the Direct Subsidy Scheme

Annex 1 Membership List of the Working Group on Direct Subsidy

Scheme

Annex 2 Consultation Activities Conducted by the Working Group on

Direct Subsidy Scheme/the Education Bureau

Annex 3 Summary of the Working Group’s Recommendations 62

Annex 4 Major Recommendations put forward by the Audit

Commission

Annex 5 Major Recommendations put forward by the Public Accounts

Committee of the Legislative Council

Annex 6 Comparison of Resources Deployment between Aided

Schools and Direct Subsidy Scheme Schools

Annex 7 List of Approved Items of Expenditure for the Direct Subsidy

Scheme Government Subsidy

Chapter One

Introduction

The Audit Commission (AC) conducted a value for money audit

on the Direct Subsidy Scheme (DSS) covering the administration of the

scheme and the governance and administration of DSS schools in 2010.

Audit’s findings were contained in Chapters 1 and 2 of Report No. 55 of

the Director of Audit (Audit Report) published in October 2010.

1.2 The Public Accounts Committee (PAC) of the Legislative Council

held four public hearings on 29 November and 2, 13 and 20 December

2010 to receive evidence on the findings and observations in the

above-mentioned two chapters of the Audit Report. In February 2011, the

PAC released the PAC Report No. 55 (PAC Report) setting out, among

other things, its conclusions and recommendations on the DSS.

1.3 To follow up the recommendations made by the AC and PAC, the

Education Bureau (EDB) set up a Working Group on Direct Subsidy

Scheme (Working Group) chaired by the Permanent Secretary for

Education in February 2011. Its terms of reference are to review the

administration of the DSS as well as the governance and administration

systems of DSS schools, and to put forward recommendations on measures

for continuous improvement. The membership of the Working Group is

set out at Annex 1

1.4 Before embarking on its discussion on improvement measures, the

Working Group was fully briefed on the policy objectives of the Scheme,

as well as the characteristics and special features of DSS schools. It also

visited a number of DSS schools in March and April 2011 with a view to

better understanding the operations of DSS schools, which would facilitate

the Working Group in making practical and feasible recommendations to

suitably address the problems identified by the AC and the PAC.

1.5 To ensure that the original policy objectives of enhancing parental

choice and enriching our education system through increasing the diversity

in our school system will continue to be achieved, the Working Group has

adopted the following guiding principles in the course of its deliberation:

(a) The EDB should maintain a proper balance between

regulatory oversight of and flexibility for DSS schools;

(b) The EDB’s monitoring and oversight should be

complemented by DSS schools’ own governance and internal

accountability;

and

(d) DSS schools should be supported with proper training that

facilitates their implementation of the improvement

measures.

1.6 The Working Group is keenly aware that sound governance and

management of DSS schools involve a diverse range of stakeholders. To

help ensure that the recommendations take account of the perspectives of

different key stakeholder groups within a DSS school, the Working Group

has, since July 2011, conducted a series of consultation sessions to gauge

the views of the DSS schools sector on the proposed improvement

measures. The parties consulted include the Hong Kong DSS Schools

Council, School Management Committee (SMC)/Incorporated

Management Committee (IMC) members, some school sponsors, parents,

principals as well as senior administrative staff of DSS schools. The

Working Group then deliberated and refined the improvement measures as

appropriate with due regard to the views thus gauged. In the run-up to the

finalization of the Working Group’s recommendations, the Working Group

invited DSS school principals, the Hong Kong DSS Schools Council as

well as SMC/IMC members to meetings and sharing sessions in late

November to mid-December to seek their further views on three major

areas of the proposed improvement measures, namely the school fee

remission criteria; the school fee income set aside for construction,

maintenance and upgrading of above-standard facilities; and the setting up

of a functional mechanism under the SMC/IMC for governance review. A

summary of the consultations and sharing sessions that the EDB and the

Working Group have held is set out at Annex 2

1.7 Making recommendations which meet the full expectations of all

stakeholders is nearly impossible as the perspectives of different

stakeholders may not fully coincide. Nevertheless, having held iterative

sharing sessions with different key stakeholder groups, the Working Group

is satisfied that the recommendations have been as sensitive and empathetic

to the concerns and interests of different stakeholder groups as possible

while adhering to the principles identified in paragraph 1.5 above. We

look forward to the endorsement of the recommendations by the Secretary

for Education and trust that, with the implementation of the

recommendations, the DSS sector, after an initial period adapting to the

guidelines on enhanced internal transparency and governance, would

benefit from a much improved administration and management.

Chapter Two

Operation of Schools under the Direct Subsidy Scheme

Pursuant to recommendations of the Education Commission

Report No. 3 published in June 1988, the DSS was introduced in 1991.

The DSS aims to inject more variety into our school system and to give

parents more choices

. In the 2011/12 school year, there are 74 DSS

schools, comprising 11 primary, 53 secondary and 10 primary cum

secondary schools. Together, they account for about 9% of publicly

funded schools and school places provided by them account for about 10%

of publicly funded school places.

2.2 DSS Schools are paid a recurrent government subsidy in form of a

block grant which schools can flexibly deploy according to their own needs.

The amount of the subsidy is based on the average unit cost of an aided

school place at comparable levels. Apart from receiving a recurrent

subsidy from the Government, DSS schools may also collect school fees as

a source of income to provide additional and quality support services for

students so as to allow them to develop their characteristics according to

their own vision and mission. Starting from the 2001/02 school year, a

DSS school will continue to receive full subsidy from the Government until

its school fee level reaches 2 1/3 of the average unit cost of an aided school

place. Beyond this level, the Government will not provide any recurrent

subsidy.

Flexibility of DSS Schools

2.3 To meet the policy objective of promoting diversity, DSS schools

are allowed to have greater flexibility in various areas including resources

deployment, curriculum design within the broad framework of the local

curriculum and student admission so that they can cater for the diverse

needs of their student intakes in a more responsive manner.

2.4 On resources deployment

, compared with their aided counterparts,

DSS schools have been given much greater flexibility in deploying their

Education Commission Report No. 3 states that “The concept of the DSS is of a scheme under which the

Government can subsidize and encourage the growth of a strong private school sector, while allowing

schools the maximum freedom with regard to curricula, fees and entrance requirements that is consistent

with basic educational standards.”

resources. Contrary to aided schools which must follow the standardized

teachers’ pay scale and establishment structure (and with teachers’ pay

credited by the Government to teachers’ bank accounts via their serving

schools), DSS schools may employ more teachers to improve the

teacher-to-student ratio, determine the number and rank of teaching and

non-teaching staff to be employed, devise school-based staff remuneration

packages as well as the subsequent salary adjustment mechanism (covering

elements such as qualifications, experience, performance and expertise, and

approving authority for determining the remuneration package of an

appointee and any subsequent salary adjustment). Instead of crediting

remuneration into teachers’ bank accounts, the Government includes such

salaries in the block grant to a DSS school. The government and

non-government funds at DSS schools’ disposal are much greater than

those at the disposal of their aided counterparts. Take a 29-class

secondary school as an example, the amount of government and

non-government funds that can be flexibly deployed by a DSS secondary

school of this school size annually is about $60 million while the amount of

annual operating funds that can be deployed flexibly by an aided secondary

school of the same size is just about $8 million.

2.5 On curriculum design

, DSS schools can provide diversified

curriculum to cater for different needs of students and cope with the

fast-changing demand of society. At present, DSS schools are required to

offer principally a curriculum targeted at local students and prepare their

students to sit for the relevant local public examinations. Within this

broad parameter, DSS schools are given maximum freedom on the design

and content of its curriculum. With EDB’s prior approval, DSS secondary

schools may offer a non-local curriculum stream at S5 and S6 levels as an

additional curriculum choice for some students. In addition, DSS schools

may also choose, according to the abilities of their students, what they

consider to be the most suitable medium of instruction for different subjects

in their curriculum for the benefits of their students.

2.6 On student admission

, autonomy and flexibility in student

admission is one of the most distinguished features of DSS schools. DSS

schools are required to establish reasonable and professionally sound

admission criteria that are consistent with their own tradition and

educational objectives. DSS schools should, however, ensure that parents

are well aware of these admission criteria. DSS primary schools do not

participate in the Primary One Admission System. Instead, they recruit

Primary One students according to their own admission criteria. As from

2006, secondary schools newly admitted to DSS are no longer allowed to

participate in the Secondary School Places Allocation (SSPA) System. At

present, about two thirds of DSS secondary schools do not participate in the

SSPA. Even for those participating in the SSPA, they enjoy greater

flexibility compared with other participating schools. They can determine

the number of S1 places for discretionary places and central allocation.

Students will not be allocated to them unless the students have included

them in their school choices in central allocation.

School governance of DSS Schools

2.7 Currently, there are three types of school governing bodies for

DSS schools, namely IMC, SMC and Management Committee (MC).

2.8 It is at DSS schools’ discretion to establish an IMC. At present,

there are 18 DSS with IMC established. An IMC shall consist of all

specified key stakeholders, viz. representatives of the school sponsoring

body (SSB), the principal, elected representatives of teachers, parents and

alumni as well as independent member(s) as required by the Education

Ordinance.

2.9 DSS schools with an SMC can broadly be categorized into two

groups. First, schools with an SMC established under the Companies

Ordinance (Cap. 32) and which have signed the SMC Service Agreement

with the Government. An SMC in this category comprises the principal,

representatives from the SSB, parents, teachers, other community

members/professionals and, where appropriate, alumni. Currently there

are 35 DSS schools with this kind of school governing body. Second,

DSS schools with their SSBs approved to play a dual role of both SSB and

SMC. They have their own ordinances with provisions on, among other

things, the composition of their governing bodies which does not

necessarily include representatives of parents and teachers. Currently

there are 6 DSS schools of this kind.

2.10 For MC formed by school managers registered under the

Education Ordinance, its composition is not specified. Currently there are

15 DSS schools each with a MC. These 15 schools joined the DSS before

the 2000/01 school year, i.e. prior to the introduction of the concept of a

time-limited service agreement signed with the EDB, and are therefore not

required to set up either an IMC or an incorporated SMC. There is no

requirement for these 15 schools to include representatives of schools’

stakeholders in their MC. To meet the public expectation of increased

accountability, these DSS schools have been encouraged to include

representatives of key stakeholders in their school governing bodies and

increase as far as possible the transparency of their operation.

Monitoring of DSS Schools

2.11 Notwithstanding the greater autonomy given to DSS schools,

regulatory oversight is still necessary. The community and the parents

would regard the EDB as the ultimate custodian of their interests in

ensuring that DSS schools abide by the terms of operation as defined by the

relevant laws, regulations and policies, the funding mandate approved by

the Finance Committee of the Legislative Council and the service

agreements concluded between the schools and the EDB. To monitor

DSS schools, the EDB has been relying primarily on DSS schools’ internal

control effected through a participatory governance framework involving

key stakeholders of schools as well as the School Development and

Accountability (SDA) framework introduced by the EDB under which

schools are required to prepare and make public their school development

plans, annual school plans and school reports to enhance their

accountability and transparency for continuous improvement.

2.12 To complement the internal control of DSS schools, the EDB has

instituted a monitoring mechanism. It comprises both compliance vetting

and quality assurance. The major means of compliance vetting are

scrutinizing schools’ audited accounts annually and conducting audit

inspection once every few years. With public funds constituting a key

source of income, DSS schools are also subject to the value for money

audit conducted by the AC. In respect of quality assurance regarding

learning and teaching, DSS schools can access all the instruments

applicable to aided schools including Basic Competency Assessments, Key

Performance Measures, Stakeholder Survey, Assessment Program for

Affective and Social Outcomes (APASO), Schools Value-added

Information System, E-platform for SDA, etc. The objective is to provide

schools with data which facilitates an assessment of whether the quality of

education provided has met the required standard and the areas in need of

focused attention. Intervention by the EDB will be taken if so warranted.

Similar to aided schools, DSS schools are also subject to quality

assessment conducted by the EDB such as the Comprehensive Review

(CR), External School Review (ESR) and Focus Inspection.

2.13 On top of the above monitoring mechanism, DSS schools have to

comply with the terms and conditions as stipulated in the SSB Service

Agreement and the SMC/IMC Service Agreement signed with the

Government. The EDB will renew the SMC/IMC Service Agreement for

a five-year term if the school’s performance is considered satisfactory.

DSS schools are also required to adhere to the statutory requirements as

stipulated in the Education Ordinance, Education Regulations, other related

legislations and such other requirements applicable to DSS schools.

2.14 As on-going practices relating to DSS monitoring, in case

complaints are received or malpractices identified, investigation will be

carried out. Under normal circumstances, if the malpractices are

substantiated, the EDB would issue advisory or warning letters to the

responsible persons demanding rectification within a specified time. In

addition to the issuance of advisory and warning letters, the EDB may

appoint school managers to the SMC.

2.15 If the concerned malpractices continue even after warning has

been given repeatedly and if further intervention at a senior level has been

administered with no avail, the EDB may withdraw the subsidy payable to

the school thus resulting in the school’s loss of DSS status. That said,

experience so far is that even for the most intransigent non-compliance

cases, the EDB has never withdrawn the subsidy payable to a DSS school

or cancel the registration even though it is legally empowered to do so.

The EDB has been reluctant to take such a drastic action having regard to

the negative impact on students’ interests that would arise from withdrawal

of subsidy and DSS status.

Considerations of the Working Group

2.16 The Working Group is well aware of the uniqueness and

characteristics of DSS schools. While by policy design, they are given

enhanced operational flexibility, they nonetheless receive recurrent

government subsidy and collect school fees from parents. Therefore, it is

imperative that there should be greater transparency and accountability to

their stakeholders and the community for their performance and proper use

of funds. The community and stakeholders (especially the parents) would

expect the EDB, as the overseer of school education, would ensure that

there are, at the school level, mechanisms for sufficient transparency and

accountability. In discharging its Terms of Reference, the Working Group

is keenly aware of the need to strike a sensible balance between monitoring

and flexibility for DSS schools; hence explains the guiding principles in

paragraph 1.5.

2.17 Set out in Chapters 3 to 8 are the Working Group’s

recommendations for the consideration of the Secretary for Education. A

summary of the recommendations is at Annex 3. To prepare DSS schools

to progressively implement the enhanced measures, the Working Group has

also recommended that relevant training should be provided for DSS

schools. The Working Group is also of the view that the EDB should be

flexible yet prudent in drawing up the implementation time table. It

should neither be unduly protracted as to frustrate enhancement to internal

school governance nor be overly ambitious as to ignore practicality issues

and diverse readiness of DSS schools.

Chapter Three

Improvement Measures for the

Fee Remission/Scholarship Schemes

Background

In order that pupils will not be deprived of the opportunity to

attend DSS schools solely because of their inability to pay fees, DSS

schools are required to provide a fee remission scheme with eligibility

criteria no less favourable than the Government’s student financial

assistance schemes. In assessing the students’ eligibility for fee remission,

no factors except the financial situation of the students’ family should be

taken into consideration. Nevertheless, noting that the socio-economic

background of students would not be within the control of DSS schools,

government policy also allows some flexibility in that the income set aside

may also be used for grant of scholarship, in addition to providing fee

remission. For transparency and to facilitate application, DSS schools are

required to set out the details of their fee remission/scholarship schemes in

the schools’ prospectuses and upload them onto the schools’ websites.

3.2 The EDB requires DSS schools to set aside at least 10% of their

total school fee income to provide fee remission/scholarship for

eligible/deserving students. If a DSS school charges a fee between 2/3

and 2 1/3 of the average unit cost of an aided school place, for every

additional dollar charged over and above 2/3 of the average unit cost of an

aided school place, the school is required to set aside 50 cents for fee

remission/scholarship scheme. When the reserve for fee

remission/scholarship scheme of a DSS school has reached a cumulative

amount which exceeds the school’s half-year total fee income due to low

utilization of the fee remission/scholarship scheme, the school should

forward to the EDB a plan on how this specific reserve will be effectively

deployed. Acceptable options for usages of the excessive reserve include:

(a) relaxing the criteria for awarding fee remission/scholarship;

(b) reducing the school fees;

reference books/stationery; and

(d) sponsoring eligible students for joining extra-curricular

activities, such as overseas educational visits and exchange

study programmes, etc.

3.3 The AC and the PAC have recommended that the EDB should look

into the causes of the low utilization of fee remission/scholarship schemes

in some DSS schools, enhance public awareness of the schemes so that

parents can take them into account when considering whether to apply for

their children’s admission to DSS schools, and step up the monitoring of

DSS schools’ compliance with its requirements on fee

remission/scholarship schemes. Details of the AC’s and the PAC’s

recommendations are at Annex 4

and Annex 5 respectively.

Deliberations and Recommendations of the Working Group

Enhancing transparency and access of information

3.4 In the course of deliberating the improvement measures for fee

remission/scholarship schemes in DSS schools, the Working Group

considers that transparency is the prerequisite to ensuring a fair chance of

admission to DSS schools for students from different strata. Enhancing

the accessibility of information of fee remission/scholarship schemes in

individual DSS schools can help parents understand the schemes and

facilitate an informed assessment of their children’s eligibility for

remission/scholarship. Insofar as parents of prospective students are

concerned, this can facilitate them to make an informed choice of schools

for their children, which would in turn help ensure that students from all

strata of the society will have a fair chance of admission to DSS schools.

The Working Group is therefore of the view that measures of this kind

should be put in place at the earliest opportunity. To this end, with the

approval of the Secretary for Education, the EDB issued a circular in early

July 2011 setting out the following new measures:

(a) DSS schools are required to consult their SMC/IMC or

parent-teacher associations on the operation of their school fee

remission/scholarship schemes and how the related

information should be presented to ensure that it can be easily

understood by parents and prospective parents of the schools;

(b) DSS schools are required to clearly indicate in the application

form for admission and the School Profile published by the

Committee on Home-School Co-operation that needy students,

including those from families receiving the Comprehensive

Social Security Assistance (CSSA) and students receiving

financial assistance provided by the Student Finance

Assistance Agency (SFAA), could apply for school fee

remission. DSS schools are also required to provide in the

admission application form details of their school fee

remission/scholarship schemes and in the School Profile, a

hyper-link through which details of the school fee

remission/scholarship schemes can be obtained on the schools’

websites;

remission/scholarship schemes to all students newly admitted

to the schools by enclosing such details with the letter offering

admission;

(d) subject to the availability of funds under the school fee

remission/scholarship schemes, in principle, DSS schools are

required to offer fee remission to students from families

receiving the CSSA and those receiving assistance from the

SFAA. This should be clearly set out in the details of the

school fee remission/scholarship schemes for information of

parents/prospective parents;

(e) when notifying students of the application results for

assistance from the SFAA, DSS schools are required to

provide an application form for the school fee

remission/scholarship schemes to each of the eligible students

as well;

(f) DSS schools should as far as possible complete processing the

applications for school fee remission schemes from newly

admitted students before the new school year begins so that

those eligible students will not be required to pay the school

fee in advance. Likewise, if applications are received during

the school year, they should be processed as early as possible;

(g) DSS schools are encouraged to provide a simulation test for

school fee remission on their websites so that parents will

know in advance the precise level of school fee remission their

children will be granted. This will facilitate decision on

school choice and/or whether to apply for remission; and

(h) the EDB will provide on its website hotlinks to the school fee

remission/scholarship schemes of individual DSS schools to

facilitate interested parents to get the information they need

easily.

Recommendation(s)

3.5 The Working Group recommends that the EDB should keep in

view the implementation of the above improvement measures and provide

advice or intervention to schools concerned where necessary.

Providing additional financial subsidy to needy students

3.6 The PAC has recommended that the EDB should consider

requiring DSS schools to provide sufficient financial subsidy to needy

students for meeting ancillary expenses in addition to school fees. The

Working Group has discussed the feasibility of making it a mandatory

requirement for DSS schools to provide all students from CSSA families or

granted SFAA full assistance with, for example, additional financial

assistance for participating in extra-curricular activities (ECA) including

exchange programmes.

3.7 The Working Group applauds the intention behind the PAC

recommendation. Having studied the utilization of the fee

remission/scholarship reserve in different DSS schools, the Working Group

notes that the situation is perhaps too diverse to afford a one-size-fits-all

approach. The latest audited accounts of DSS schools show that about

40% of the schools have used more than the amount required to be set aside

for fee remission/scholarship. The extent of over-provision can be up to

700% of the required amount set aside. In fact, some schools are already

providing needy students with assistance (in areas such as textbooks, lunch,

ECA, etc.) in addition to school fee remission. Noteworthy is that any

additional requirement may exert an upward pressure on school fees.

Since the school fee remission/scholarship reserve cannot be used for any

other purpose, the Working Group is of the view that schools should have

every incentive to facilitate their students to have the best value-added.

After all, students’ good learning outcome could be a valuable publicity and

alumni resource for the schools.

Recommendation(s)

3.8 The Working Group recommends that DSS schools should

continue to be given the flexibility to devise their school-based

arrangements to offer financial assistance to needy students over and above

the current requirements outlined in paragraphs 3.1, 3.2 and 3.4 above.

Exploring the possibility of setting up a centralized fund for fee

remission/scholarship purposes

3.9 Despite efforts made by some DSS schools to attract applications

from students of needy background, the fee remission/scholarship reserve

remains sizeable. To improve the utilization rates of the fee

remission/scholarship of these schools, some Legislative Council Members

have made a suggestion that a centralized fund be set up, such that DSS

schools with a large amount of fee remission/scholarship reserve be

required to contribute a certain percentage of their reserve to the new

centralized fund for the grant of remissions to students from other DSS

schools which have depleted funds in their fee remission/scholarship

reserve.

3.10 The Working Group assesses the proposal from the perspectives of

different stakeholders, including the school management and parents of the

schools contributing to and receiving funds from the centralized fund. It

has identified the following possible implications:

Pros

(a) The idle funds can be deployed to help needy students in

other schools.

(b) A possible redistribution of reserve to the centralized fund

may serve as an incentive for schools with huge fee

remission/scholarship reserve to actively explore ways to use

their reserve.

not feel inhibited in accepting more students from needy

background.

Cons

(d) Some schools which are currently providing more school fee

income for their fee remission/scholarship schemes than

required may discontinue doing so. (At present, the

expenditure on fee remission/scholarship in about 40% of

DSS schools far exceeds the amount set aside as required.)

(e) The distribution of the funds will create equity problems and

implementation difficulties. Should funds be given as a

percentage of school fees or the actual school fee amounts of

the recipient schools? What if the demands for the funds

outstrip the funds available? To reduce moral hazard in the

use of the funds, should there be additional requirements

imposed on applicant schools, e.g. no scholarship should be

given and no financial assistance over and above school fee

remission should be given?

(f) Parents of the contributing schools may question the fairness

of the proposal to them. Instead, they may put pressure on

the schools to reduce school fees or distribute the funds for

scholarship purposes to an extent more generously than the

schools’ professional judgment would consider desirable.

3.11 The Working Group also acknowledges that some DSS schools

have been actively exploring ways to increase the utilization rates of their

fee remission/scholarship schemes after the release of the Audit Report and

the PAC Report. For example, some have relaxed the eligibility criteria.

Some have proactively invited primary schools/kindergartens to

recommend needy students meeting their admission criteria. Noting the

receptiveness of the schools and their proactive approach, the Working

Group considers it premature for the Administration to adopt measures

such as the setting up of a centralized fund which entail unintended

implications.

Recommendation(s)

3.12 The Working Group therefore recommends that:

(a) DSS schools be encouraged to continue to explore ways to

better utilize their fee remission/scholarship reserve; and

(b) the proposal of setting up a centralized fund for fee

remission/scholarship purposes be shelved and only be

revisited if the situation of under-utilization of fee

remission/scholarship reserve by DSS schools persists.

Use of funds between fee remission and scholarship

3.13 The primary objective of setting up the fee remission/scholarship

reserve is to enable students lacking means to study in DSS schools. To

better ensure the attainment of this objective, the Working Group has

discussed the need to set a cap on the percentage of funds used for

scholarship purpose.

3.14 The Working Group notes that DSS schools have all along been

given the flexibility to use their fee remission/scholarship funds on fee

remission and/or scholarship, with no further stipulation on the distribution

between the two. The Working Group also notes that schools define

“scholarship” differently. While some award scholarship solely on a

merit basis without regard to needs, some include in the category of

“scholarship” financial assistance to needy students to participate in

overseas visits/programmes. Unless and until the Government has

received complaints or unearthed evidence suggesting schools’ deliberate

attempts to displace fee remission with scholarship, the Working Group

prefers to respect the discretion of the schools to determine their own fee

remission and scholarship criteria having regard to their mix of students

admitted through a needs-blind admission process, subject of course to

their observation of the existing requirements in paragraphs 3.1, 3.2 and 3.4

above.

Recommendation(s)

3.15 The Working Group therefore does not recommend setting a cap

for scholarship.

Surrender of school places for central allocation

3.16 During the course of the PAC hearings, a suggestion was made

that DSS schools should set aside a certain percentage of their school

places for central allocation through EDB’s school places allocation

systems in order to facilitate access to DSS schools by students from

grassroots families.

3.17 The Working Group considers the proposal an erosion of the

guiding principle that DSS schools enjoy flexibility in student admission.

In addition, the school places allocation systems cannot guarantee the

placement to DSS schools of students from grassroots families. Instead,

the Working Group considers it only prudent to monitor the

implementation of the improvement measures before deciding if further

tightening is warranted.

Recommendation(s)

3.18 The Working Group does not recommend mandating DSS schools

to surrender a percentage of their school places for central allocation by the

EDB.

Uncertainties faced by schools with utilization of fee

remission/scholarship far exceeding the reserves set aside as required

3.19 As mentioned in paragraph 3.1 above, DSS schools are required

to provide a fee remission scheme with eligibility criteria no less

favourable than the Government’s student financial assistance schemes.

Some DSS schools have indicated that their expenditures on fee

remission/scholarship far exceed their reserves set aside for the purpose

because they have admitted a significant number of needy students.

Though they are still able to top up their fee remission/scholarship reserves

by using their non-government funds, they are concerned about the

long-term sustainability of this approach since they are obliged to

administer a needs-blind admission. In addition, unless the family

circumstances of a needy student improve significantly, the schools may

need to provide him/her with fee remission for six or even 12 years. They

therefore request flexibility to revise their fee remission eligibility criteria

to a threshold less favourable than those of the government financial

assistance schemes to needy students.

3.20 The Working Group notes that the circumstances of different DSS

schools are very diverse. While some have a large fee

remission/scholarship reserve, some (30 schools or about 40%) have used

more than 100% of the amount required with the percentage of one school

reaching as high as 700% of the amount required to be set aside. For

schools in the latter category, the Working Group agrees that the rigid

application of the “no less favourable” requirement may pose difficulties to

some schools, create pressure for tuition fee increase and/or unduly affect

the quality of the educational services provided for students.

3.21 The Working Group empathizes with the concern about long-term

financial sustainability of those DSS schools which have admitted a large

number of needy students. On the other hand, noting that making fee

remission available in terms no less favourable than those of government

schemes is one of the cardinal principles of DSS policy, the Working Group

sees the need to stipulate some parameters to forestall abuse of the

flexibility to set remission criteria which depart from the “no less

favourable” requirement.

3.22 Guided by the consideration in paragraph 3.21 above, the

Working Group favours the adoption of the following measures:

(a) DSS schools meeting the following criteria should be

allowed to apply

to the EDB for exemption from the

The EDB will examine the schools’ applications with reference to their financial positions, the

proposed levels of reduced remissions and so on with a view to ensuring that the needy students will still

be able to receive fee remission under the revised eligibility criteria though at a different remission level

as compared to the government financial schemes.

requirement of adopting eligibility criteria no less

favourable than those of the government financial assistance

schemes to needy students:

(i) the utilization rates of their fee remission/scholarship

provisions are 100% or more as reflected in the audited

accounts of the past three consecutive years; and

(ii) in overall terms, during the three years in question, two

thirds of their fee remission/scholarship provisions or

more have been used for fee remission purposes as

confirmed by the schools.

(b) DSS schools given exemption should ensure that:

(i) students receiving fee remission before the schools

adopt the revised eligibility criteria will not be affected,

i.e. they will continue to receive fee remission under the

previous eligibility criteria until they graduate from the

schools; and

(ii) sufficient notice must be given to prospective

parents/students before implementing the new eligibility

criteria; and in any case, the revision must be made

available for public consumption as per the measures set

out in paragraph 3.4 above;

(i) the average utilization rate of their fee

remission/scholarship provisions under the revised

eligibility criteria in the past three years is less than 80%;

(ii) in the past three years, on average, less than two thirds

of their fee remission/scholarship provisions under the

revised eligibility criteria are used for fee remission

purposes.

3.23 In the course of the discussions with DSS schools, a few DSS

schools have suggested that the requisite share between fee remission and

scholarship utilization for triggering the flexibility be set at either “51%” or

an unspecified “majority share”. The Working Group has discussed this

in detail and come to a considered view that, to forestall grey area in this

issue of great community concern, clarity would be desirable. In addition,

a “two-thirds” share between remission/scholarship utilization would help

ensure accessibility of DSS places to students from grassroots

backgrounds.

Recommendation(s)

3.24 For reasons stated in paragraphs 3.20, 3.21 and 3.23 above, the

Working Group recommends the adoption of the measures set out in

paragraph 3.22.

Better utilization of fee remission/scholarship reserves in through-train

secondary and primary schools

3.25 Currently, the utilization rates of the fee remission/scholarship

provisions are generally lower in primary schools. This situation is also

common in through-train secondary and primary schools. Currently, we

require such schools to segregate the administration of their fee

remission/scholarship schemes. Despite the efforts of some through-train

schools to proactively attract applicants from needy backgrounds, the

utilization of their fee remission remains low, though improved. They

therefore request greater flexibility for deployment of the fee

remission/scholarship reserves between the through-train primary and

secondary schools.

3.26 The Working Group notes that while it is easier for a secondary

school to admit students from needy background based on their

performance in primary schools, it is more difficult for a primary school to

do likewise as the interview performance of a five-year old may reflect

more socio-economic background of his/her family than the child’s own

potential or attributes. In addition, given the close connection between the

through-train primary and secondary schools, enabling the linked

secondary school to admit more needy students by utilizing the consistently

under-utilized fee remission/scholarship reserve of the linked primary

school should help enhance the accessibility of DSS school places to

students from grassroots backgrounds. Nevertheless, the Working Group

also considers it essential that any additional flexibility must not be

provided against the wishes of the linked primary school. Nor should the

interests of needy students in the linked primary school be affected. Seen

from a broader perspective, this is also in line with the spirit of the existing

arrangement generally applicable to all DSS schools whereby the use of the

fee remission/scholarship reserve between different class levels in a DSS

school is not subject to any restriction.

Recommendation(s)

3.27 The Working Group recommends that through-train secondary

and primary schools be allowed to transfer a maximum of 50% of the fee

remission/scholarship reserves of the linked primary school to the linked

secondary school should they meet the following conditions and obtain

prior approval from the SMC/IMC:

(a) the utilization rates of the fee remission/scholarship

provisions of the linked secondary school are 100% or more

as reflected in the audited accounts of the past three

consecutive years; and

(b) two thirds of the fee remission/scholarship provisions or

more of the linked secondary school are used for fee

remission purposes as confirmed by the schools.

3.28 Following the same logic, the Working Group also recommends

that similar flexibility under identical terms be allowed for the transfer of

fee remission/scholarship reserves of the secondary school to the linked

primary school.

Chapter Four

Strengthening the Governance and

Internal Control of Direct Subsidy Scheme Schools

Background

Born out of a conscious Government decision to enhance diversity

in the school system, DSS schools are given a greater operational flexibility

to better enable them to develop their characteristics. A list of the key

areas in which DSS schools enjoy greater flexibility in resources

deployment when compared with their aided counterparts is set out at

Annex 6

. Arising from this greater flexibility are also greater financial

resources at their disposal. With teachers’ pay which constitutes around

80% of the government’s subvention to aided schools credited by the

Government to teachers’ bank accounts via their serving schools, the

annual operating funds that can be deployed flexibly by an aided 24-class

primary school, the typical size of aided primary schools, are about $4

million. Those for an aided 29-class secondary school, the typical size of

aided secondary schools, are about $8 million. In respect of DSS schools,

when Government subvention and tuition fees income are added together,

the recurrent incomes at the disposal of a DSS primary school with the

same size, i.e. 24 classes, are about $30 million. The corresponding

amounts for a DSS secondary school with the same size, i.e. 29 classes, are

about $60 million. A few DSS schools comprise both the primary and

secondary sections, thus implying an even greater financial responsibility.

4.2 Schools are financed mainly by community resources, be they

taxpayers’ money or tuition fees. With more funds at their disposal, there

come greater responsibilities and a greater need for accountability.

Having regard to the policy design allowing DSS schools greater flexibility,

the EDB has always refrained from micro-managing DSS schools. Yet,

the EDB is aware that the community and the parents would

understandably regard the EDB as the custodian of their interests insofar as

schools’ operation is concerned. Hence, the EDB has devised a host of

guidelines on DSS schools’ operation.

The guidelines are premised on a

trusting relationship between the EDB and the schools as well as a reliance

on schools’ internal governance framework to ensure the proper

EDB Circular No. 4/2010 on Use of Government Funds in DSS Schools and EDB Circular No. 12/2010

on Use of Non-government Funds in DSS Schools

issued in 2010 encapsulate the regulations and

requirements applicable to DSS schools.

management and administration of DSS schools. The AC’s findings

reveal that there are some practices associated with the governance and

administration of some DSS schools which have fallen short of

expectations. Of note is that most if not all of the AC’s findings cover

areas already included in the requirements in the guidelines promulgated.

Please see the major recommendations for improvement put forward by the

AC and the PAC at Annex 4

and Annex 5 respectively.

Deliberations and Recommendations of the Working Group

4.3 The Working Group believes that the EDB should take a serious

view of the custodian role that the community expects of it. Broadly

speaking, there are two ways to ensure that DSS schools are administered

and managed well and make good the areas in need of rectification as

identified by the AC and PAC – either the EDB monitors directly each and

every detailed aspect of every school’s operation or the EDB continues to

rely on DSS schools’ internal governance. Between the two approaches,

the Working Group unanimously favours the latter which it believes helps

underline the diversity enhancement objective behind the DSS policy.

The Working Group also believes that good internal governance can help

ensure effectiveness, credibility, and long-term sustainability of DSS

schools. However, the AC and PAC findings do reveal that the EDB can

continue to rely on schools’ internal governance only if it is able to identify

a way to ensure that the internal governance is sound.

4.4 Sound internal governance, we believe, must be premised on a

few essential ingredients. Transparency of important management

information to key stakeholders is one of them as this could in turn ensure

that decisions are made on an informed basis and in the overall interest of

the students. Also essential is a healthy management structure and culture

to ensure accountability, checks and balances as well as a readiness to

identify and address areas in need of improvement. The management

structure of a school comprises the governing body in the form of an

SMC/IMC

and the Executive led by the principal. The SMC/IMC sets

direction and strategy and entrusts the implementation of the direction and

strategy as well as the day-to-day operation of the school to the principal

who is in turn supported by a team of teaching and management staff.

The principal should be accountable to the SMC/IMC and has a fiduciary

Following the implementation of school-based management, key stakeholder groups are represented on

IMCs. Though some schools have been exempted for various reasons from the requirement to form

IMCs, they are nevertheless encouraged to include on their SMCs key stakeholder groups that are

normally represented on IMCs or, at least, to consult such key stakeholder groups on major decisions.

duty to consult the SMC/IMC on key decisions. This entrusting and

accountability relationship is not unique to DSS schools and can in fact be

found in any modern day organizations in the public, non-government as

well as private sectors. The SMC/IMC is not extraneous to the school;

rather, like the Executive led by the principal, it is an integral part of the

school. Hence, a healthy system of internal school governance must be

premised on the proper exercise of the respective roles of the SMC/IMC

and the school Executive. This consideration underlies the

recommendations of the Working Group which are elaborated in the

sections to follow.

Enhancing transparency of school governing bodies

4.5 As the governing bodies, the SMC/IMC sets the direction and

strategy of schools. The community especially parents of prospective and

current students of a school have a legitimate interest in knowing who sit

on the SMC/IMC. Experience suggests that most schools do not mind

making the composition of their governing bodies public. During PAC

hearings, this disclosure issue did attract some discussion. In respect of

the very few schools which then refused disclosure, the community

especially the media did express significant misgivings.

4.6 The Working Group favours requiring all DSS schools to make

transparent the composition of their school governing bodies. To draw a

sensible balance between meeting public expectation for increased

accountability and transparency of DSS schools and school managers’ right

to privacy, the Working Group considers that the particulars to be disclosed

should be confined to their name, tenure of office and category of manager

to which they belong. In this connection, DSS schools with IMC are

already obliged to do so under the Education Ordinance. Noting that this

disclosure obligation does not cover DSS schools governed by SMC/MC,

the Working Group has taken note of the need to take account of the

relevant provisions in the Personal Data (Privacy) Ordinance (Cap. 486)

when making recommendation encouraging disclosure. Legal advice has

been sought in the course of the deliberation.

Recommendation(s)

4.7 In respect of DSS schools governed by SMC/MC, the Working

Group recommends the following:

(a) at school level, the EDB to consult schools on disclosure of

their composition on the EDB’s homepage;

(b) at individual school manager level, the EDB to add a

checkbox to the application form for registration as a

manager with a view to seeking his/her consent of the EDB’s

disclosure of his/her information including the name, tenure

of office/date of registration and category of school manager.

As for serving managers of SMC/MC, the EDB should seek

their consent to similar disclosure through an ad hoc exercise;

and

proposed disclosure, the EDB to add a remark indicating the

number and categories, if applicable, of managers who have

not given such consent on the relevant part of the EDB’s

homepage.

Enhancing internal control mechanism

4.8 As explained in paragraphs 4.3 and 4.4 above, sound internal

governance can be assured only upon the availability of important

management information and the existence of systems and processes which

make accountability a reality rather than an empty pledge. The Working

Group deliberated in great detail the regulatory framework that should be

put in place within DSS schools to facilitate internal governance

enhancement while respecting the diversity of DSS schools and obviating

the need for the EDB to micro-manage DSS schools’ day-to-day operation.

In the course of the deliberation, a series of iterative sessions have been

held with different stakeholder groups in the DSS sector – the Hong Kong

DSS Schools Council, principals, supervisors, school managers and

parents – with a view to gauging what the elements of a non-intrusive yet

effective governance framework may be. The framework that the

Working Group eventually recommends comprises three inter-related

aspects, viz. a self-evaluation checklist, the setting up of a functional

mechanism under the SMC/IMC to assist the governing body in ensuring

the integrity and faithful implementation of various key management and

financial systems, and a list of essential items to be discussed at SMC/IMC

meetings. These are elaborated in the sections to follow.

(1) Self-evaluation Checklist

4.9 The day-to-day operation of a DSS school is a shared

responsibility of the paid staff. Each management system comprises a

series of processes, the partial omission of which could significantly

undermine the integrity of the system, irrespective of whether the omission

is inadvertent. Examples highlighted in the AC’s report include the

omission of tendering in procurement and of advertising for vacant

teaching posts. By setting out the processes which are considered

essential to the integrity of a management system, a checklist can greatly

facilitate compliance. It should also help insure against important

omissions occasionally associated with turnover of school managers,

principals and other supporting staff. It cannot be over-emphasized that

the proposed self-evaluation checklist (Checklist) is meant to facilitate DSS

schools’ internal monitoring. The proposed Checklist should cover four

important areas of school operations, including:

(a) general administration of school governing body;

(b) operation of school fee remission / scholarship schemes;

limited to the following aspects:

(i) staff recruitment;

(ii) staff remuneration;

(iii) staff performance management; and

(iv) staff development;

(d) financial management matters, including but not limited to

the following aspects:

(i) revision of school fees;

(ii) use of government funds and non-government funds;

(iii) accounting practices;

(iv) procurement procedures;

(v) trading operation;

(vi) investment;

(vii) probity requirements;

(viii) fund raising activity; and

(ix) internal control.

4.10 The Working Group considers that this proposed measure is

conducive to the enhancement of DSS schools’ internal control mechanism.

Through completing the Checklist, DSS schools will increase their

awareness of the need, and be guided, to put in place checks and balances

for self improvement. The Checklist will also facilitate DSS schools’

preparation of the forthcoming management and financial audit as set out in

paragraphs 4.20 and 4.21 below. To ensure that the Checklist would be fit

for purpose and neither too brief to be effective nor too detailed to cause an

unreasonable administrative burden, the Hong Kong DSS Schools Council

has been invited to develop the Checklist in collaboration with the EDB.

Discussions have already commenced at the time of drafting this Report.

Recommendation(s)

4.11 The Working Group recommends that:

(a) all DSS schools be required to conduct self-assessment by

completing the Checklist regularly;

(b) while the EDB would collaborate with the Hong Kong DSS

Schools Council in the development of the Checklist,

individual DSS schools should be given flexibility in

adapting or modifying the Checklist to suit their own needs

given that their needs do vary; and

effective use of the Checklist with a view to promoting over

time the internalization of a self-evaluation culture in DSS

schools.

(2) Mechanism under the SMC/IMC to conduct governance review on a

regular basis

4.12 The second aspect of the framework to facilitate enhanced internal

governance of DSS schools proposed by the Working Group is to set up,

under the SMC/IMC, a governance review sub-committee (or any other

name the SMC/IMC sees fit) for conducting system review of various key

management and financial control systems and processes including whether

the various checks and balances are working as intended. An SMC/IMC

normally comprises more than 10 persons meeting for a few hours a few

times every year. Given that DSS schools are fee charging and granted

with greater flexibility and autonomy, the Working Group considers that the

proposed governance review sub-committee is of critical importance to the

sound administration and management of DSS schools. Given the

potential liability of an SMC/IMC for mishaps in its school, it is only fair

that it has at its disposal a mechanism to help it assure the proper and

effective administration and management of the school.

4.13 The Working Group is also of the view that the operation and

composition of the governance review sub-committee should basically

follow the good practices of audit committees that are common in the

private sector and in organizations receiving recurrent government

subsidies, e.g. government-subvented non-government organizations.

Details of the proposed governance review sub-committee are as follows:

(a) A governance review sub-committee (or any other name the

SMC/IMC sees fit) responsible for conducting regular system

reviews of various key management and financial control

systems and processes has to be set up by DSS schools by

the 2013/14 school year;

(b) Specifically, the governance review sub-committee should

review school-based policies and processes in respect of the

following aspects:

(i) human resources management matters including staff

recruitment, promotion, remuneration, etc;

(ii) financial management matters including school

budgeting, financial reporting, procurement, investment,

transfer of funds from the operating reserve to

designated reserves, etc;

(iii) operation of school fee remission/scholarship schemes;

Other management functions can be assigned to the

governance review sub-committee as individual SMC/IMC

deems appropriate;

terms of a viable quorum for a meeting and for the sake of

continuity, the governance review sub-committee should

have a minimum of three members, with one member

preferably with experience and qualification in

accounting/financial management and one member being a

manager of the school. To avoid conflict of interests,

parents of students studying in the school should not be

invited as a member of the sub-committee. In addition, all

the members should not be among the paid staff of the

school;

(d) In principle, the governance review sub-committee is

required to complete a comprehensive review of the

school-based policies and processes as set out in paragraph

4.13 (b) (i), (ii) and (iii) and submit a comprehensive report

to the SMC/IMC within a three-year cycle. Within the

three-year cycle, the SMC/IMC should determine the focus of

its annual review each year and the governance review

sub-committee should then submit a focused review report to

the SMC/IMC annually; and

(e) While paid staff of a DSS school including the principal and

senior teachers/heads of functional committees of the school

should not serve as member(s) of the governance review

sub-committee, they may, at the discretion of the governance

review sub-committee, attend meetings or serve as resource

persons to facilitate the internal review. Nevertheless, at the

review sub-committee meeting(s) where the annual focused

report or the comprehensive report is to be finalized before

submission to the SMC/IMC, attendance should be confined

to official members of the governance review sub-committee

only.

4.14 The Working Group acknowledges that some DSS schools may

have difficulty in enlisting a suitable candidate with accounting or financial

management background to serve on the governance review sub-committee.

In this regard, the EDB will discuss with the Hong Kong Institute of

Certified Public Accountants and the relevant professional bodies the

feasibility of compiling a list of potential candidates who are willing to

serve as members of governance review sub-committees for DSS schools’

consideration.

4.15 Some schools have suggested that schools with their SSBs having

already set up similar committees or with an independent audit department

to carry out similar duties should be exempted from the requirement. The

Working Group is of the opinion that variations in the means to achieve the

same function of the proposed governance review sub-committee should be

allowed. Nevertheless, the relevant committees of the SSBs should in

principle follow the basic requirements of the proposed governance review

sub-committee as set out in paragraphs 4.13 above. For example, they

should co-opt one manager of the SMC/IMC of the DSS schools as a

member when reviewing schools’ policies and processes, which will

facilitate more fruitful reviews with inputs from personnel who are familiar

with the schools. The EDB could discuss with the SSBs which have

similar committees or audit departments in place the optimal means and

set-up to achieve the function of the proposed governance review

sub-committee.

4.16 During the various consultation sessions, though some

stakeholders such as school sponsors, SMC/IMC and some principals

welcome and support the recommended measure, the Working Group also

notes that there is strong resistance from some DSS schools to this

recommended measure. Some DSS school principals consider the set up

of an independent sub-committee on internal control unnecessary since the

Checklist should have already met the needs for an internal system audit.

They also consider the proposed set-up detrimental to the mutual trust

between the SMC/IMC and the Executive led by the principal. Having

mulled over such views, the Working Group, while appreciative of the

anxiety of the principals, considers such sentiments rather misguided and

unnecessary. While the proposed Checklist should greatly facilitate the

system review, a Checklist per se would not safeguard system integrity

especially if the Checklist has been completed in a perfunctory manner.

To put simply, the proposed system review is no more than a health check.

And the proposed governance review sub-committee, as a dedicated

functional set-up accountable directly to the SMC/IMC, is no more than a

medical practitioner engaged by the school to ensure its own healthy

functioning. After all, the school’s Executive should be held accountable

to its governing body. As a matter of fact, such internal system review

mechanism is in fact quite common in private sector organizations, higher

education institutions and sizeable non-government organizations. After

careful and thorough deliberation, the Working Group remains of the view

that a governance review sub-committee which aims to enhance DSS

schools’ internal governance is necessary should respecting the diversity of,

and refraining from micro-managing, DSS schools remain the EDB’s

policy objective.

Recommendation(s)

4.17 The Working Group therefore recommends that all DSS schools

be required to set up a governance review sub-committee (or any name the

SMC/IMC sees fit) to assist the SMC/IMC in reviewing the system

integrity of various management and financial control processes with

regard to the requirements mentioned in paragraph 4.13 above.

(3) Essential Items to be discussed at SMC/IMC Meetings

4.18 In principle, all important matters of the operation of schools

should be thoroughly deliberated at SMC/IMC meetings to ensure that the

decisions made are in the best interests of students and in accordance with

the mission, strategy and direction of the schools. Nevertheless, the AC

and PAC findings suggest that there were incidences of important school

matters implemented before they were deliberated by the SMC/IMC. To

help minimize such incidences, the Working Group considers that a list of

essential items that should normally be covered in an annual cycle of

SMC/IMC meetings will help enhance accountability and governance such

as forestalling the inadvertent oversight of important administrative and

management issues. Of note is that it is rather normal that not all

managers of an SMC/IMC are au fait with the operation of schools. And

it is also rather common for an SMC/IMC to meet for just a few hours a

few times every year. Having a list of essential items would help ensure

the efficient and proper operation of the SMC/IMC.

Recommendation(s)

4.19 The Working Group recommends making it a mandatory

requirement for DSS schools to put up essential matters as set out below for

discussion and approval at SMC / IMC meetings:

(a) the human resource policies for senior teaching and

administrative posts such as the recruitment, appointment,

promotion and remuneration packages of senior teaching and

administrative staff;

(b) annual school budgets and financial report/audited account

including acceptance of donations and fund raising activities;

determination of what constitutes “large-scale” works);

(d) procurement of services or goods through tendering with

significant financial implications (including the SMC/IMC’s

determination of the thresholds for different modes of

procurement);

(e) operation of the fee remission/scholarship scheme including

an annual operational summary and criteria for the schemes;

(f) fee revision proposals;

(g) investment policy and update;

(h) advisory letter(s) specifying for the attention of the

SMC/IMC and/or any warning letter(s) (e.g. the management

letter from EDB’s School Audit Section); and

(i) self-evaluation on schools’ academic as well as non-academic

performance under the School Development and

Accountability Framework, including the endorsement of

School Development Plan, Annual School Plan and School

Report.

Strengthening the monitoring of school performance

Management and Financial Audit

4.20 To the Working Group, internal governance by DSS schools and

macro external oversight by the EDB as a regulator are complementary

measures. Hitherto, the EDB’s audit inspections focus on the financial

aspects of DSS school operations only. The AC and PAC findings point

out the inadequacy of such an approach. Without covering the

management aspects, the financial audit alone would not be able to assure

the prudent use of DSS schools’ resources which should include not only

funds but also other forms of resources available such as human resources.

The Working Group shares the views of the AC and PAC and favours the

extension of EDB’s regulatory oversight to management aspects also.

Recommendation(s)

4.21 The Working Group recommends that:

(a) the existing audit inspection of DSS schools should be

replaced by a management and financial audit;

(b) relevant training be provided for DSS schools before the

commencement of the management and financial audit from

the 2014/15 school year to allow DSS schools to acquire

sufficient know-how and have ample time to prepare for the

enhanced audit; and

round of the management and financial audit of DSS

schools to determine whether the management and financial

audit should become an on-going measure; and if so, how.

Chapter Five

Strengthening the Financial Management

of Direct Subsidy Scheme Schools

Background

In its report released on 16 February 2011, the PAC has expressed

great concern about AC’s findings as regards the financial management of

DSS schools and recommended measures for improvement. The major

recommendations put forward by the AC and the PAC are at Annex 4

and

Annex 5

respectively.

5.2 DSS schools’ available resources can be divided into two

categories, namely, the government and non-government funds. The

government funds mainly come from a recurrent per capita government

subsidy based on the average unit cost of an aided school place.

Only

approved expenditure items of educational nature as stipulated in Annex 7

can be charged against the government fund account. The

non-government funds, which include school fee income, donations,

proceeds of trading operations and any other incomes derived from other

non-government sources, also constitute an integral part of DSS schools’

available resources. DSS schools are required to exercise their

professional judgment to deploy the non-government funds flexibly and

diligently for meeting educational and school needs only.

5.3 Proper use of funds is fundamental and conducive to school

effectiveness, credibility and viability. Being in receipt of public funds,

DSS schools are accountable to the public and their stakeholders, including

parents, for the proper use of resources for providing quality education in

the best interest of the students. The onus of resource deployment of DSS

schools is greater than that of their aided counterparts because they may

also collect school fees and enjoy greater flexibility in the use of funds.

Concomitant with a greater onus and greater responsibility is a higher

expectation of accountability and transparency. Such may include, for

example, the clear delineation of different sources of incomes and different

purposes of expenditures as well as procedural propriety in the processing

and documentation of incomes and expenditures to forestall abuse and

perception of abuse.

5.4 Quite a number of DSS schools have adopted a practice rather

prevalent in aided schools, and that is the lumping together of funds meant

for different purposes. This sometimes creates unnecessary perception

and management problems. For example, a DSS school wishing to raise

tuition fee would likely meet with parental objection if it has sizeable

reserves. The objection may have been obviated had the school separately

accounted for the reserves a fair portion of which may have been donations

pledged to support future upgrading of schools facilities. In addition,

irregularities in respect of the use of their funds are detected through EDB’s

prevailing mechanism such as audit inspections from time to time. The

AC and PAC findings also reveal similar irregularities, e.g. charging

unapproved expenditure items to the government subsidy, school-based

tendering and procurement policy not properly implemented, collecting

fees and charges without the EDB’s prior approval, etc. Though most of

the irregularities are oversights rather than of systemic significance, their

frequency of occurrences does beg questions regarding the efficacy of the

EDB’s monitoring of schools’ compliance and raise the need to enhance

DSS schools’ financial management.

5.5 To better monitor the financial m

anagement in DSS schools and

enforce the prevailing requirements on the use of schools’ resources, the

EDB has introduced the following measures since the release of the Audit

Report in October 2010:

(a) As from

the 2010/11 school year, the Task Force on DSS

chaired by a Deputy Secretary for Education will discuss the

annual summary of findings on the annual audited accounts

submitted by DSS schools and the audit inspections

conducted by the EDB officers, so that the EDB can have a

holistic review of the financial management of DSS schools

and ensure effective follow-up of various improvement

measures in addition to timely and full compliance of

relevant requirements by schools;

(b) The reporting requirements in the 2009/10 DSS school

audited accounts have been enhanced with a view to

facilitating an early detection of and timely follow-up of

possible irregularities; and

schools for audit inspections has been adopted.

The Task Force on DSS is a standing task force on DSS within the EDB responsible for monitoring the

implementation of the DSS. It is chaired by a Deputy Secretary for Education.

Deliberations and Recommendations of the Working Group

5.6 The Working Group takes note of the improvement measures

outlined in paragraph 5.5 above and has, further to the measures, discussed

various proposals to enhance DSS schools’ financial management. Details

are in the ensuing paragraphs.

Clear delineation between the operating reserve and the designated

reserve

5.7 With a view to facilitating DSS schools’ financial management

and helping their stakeholders understand clearly the financial situation of

the schools, DSS schools’ reserves should be classified into two categories,

namely the operating reserve and the designated reserve. Such

demarcation is also necessary for the implementation of the proposed

measures as set out in paragraphs 5.8 to 5.31 below. The arrangement is

illustrated in the table below:

Operating

Reserve

Fee

Remission /

Scholarship

Reserve

Long

Service

Payment

Reserve

Donations

with

Specific

Purposes

Designated Reserves

Operating Reserve

To be created on a need

basis and subject to

EDB’s approval, where

necessary

Reserve for

Construction,

Maintenanc

e and

Upgrading of

Above-standard

Facilities

5.8 Accum

ulated surplus

arising from both government and

non-government funds (except for those in the designated reserves) in DSS

schools will be classified as the operating reserve of DSS schools. The

reserves that DSS schools are allowed to keep separately are classified as

designated reserves which may include (i) fee remission/scholarship

reserve, (ii) long service payment reserve, (iii) donations with specific

"Accumulated surplus" is the excess of income over expenditure over the years concerned which is

retained in the form of assets net of liabilities. Assets include fixed assets, accounts receivable and cash,

among others.

purposes and (iv) a new reserve for constructing, maintaining and

upgrading above-standard facilities. The new reserve for use relating to

above-standard facilities may only be created on a need basis with the

approval first by the SMC/IMC and then by the EDB where necessary.

Setting a ceiling for schools’ operating reserve

5.9 According to Financial Circular No. 9/2004 promulgated in

September 2004, subvented organisations, including DSS schools, may

place surpluses arising from subvented programmes into a reserve. The

surpluses may come from unspent subvention or unspent income from

other sources supporting a subvented programme. Government

bureaux/departments should, in consultation with the Financial Services

and the Treasury Bureau (FSTB), set an appropriate reserve ceiling for such

surpluses. Any surplus in excess of the ceiling should be returned to the

Government (e.g. by way of offsetting from next year’s subvention), or

dealt with in accordance with the arrangements agreed between the

Government and the organisations.

5.10 Notwithstanding the requirements in Financial Circular No.

9/2004, to give DSS schools flexibility in deploying their resources to

achieve their own development objectives, DSS schools have all along

been allowed to keep all the accumulated reserves of both the government

and the non-government funds. In case a DSS school is found to have

maintained excessive surplus or large reserve, i.e. with accumulated surplus

of government and non-government funds exceeding the annual total

expenditure or with accumulated surplus of government funds equal to

30% or more of the total annual expenditure, the EDB will request the

school to submit a development plan in three months for the former or a

written explanation in two months for the latter setting out how the

operating surplus would be used for school development. The AC and

PAC asked the EDB to review such practice as it was considered out of line

with the practice generally applicable to subsidized organizations.

5.11 Government subsidy and school fees constitute the key income

sources of DSS schools and both are payable at regular intervals. For

most schools, their activities seldom fluctuate drastically between adjacent

years. DSS schools should, on the whole, be operating within a fairly

stable environment. Therefore, the Working Group sees no strong

grounds for DSS schools to accumulate a large operating reserve. Their

resources should primarily be used on teaching and learning in the interests

of the students. Setting a reserve ceiling for the accumulated operating

reserve of DSS schools will encourage DSS schools to make better

planning on deployment of their resources including a timely review of the

school fee levels they charge. In determining the appropriate level at

which the ceiling should be set, the Working Group has made reference to

the following existing practices:

(a) the existing ceiling of accumulated reserves above which

DSS schools are required to submit a development plan

setting out how the operating surplus would be used for

school development, i.e. 12 months’ operating expenditure;

and

(b) the existing arrangement adopted for aided schools, i.e. they

are allowed to retain unspent funds up to a ceiling equivalent

to 12 months’ provision of the Operating Expenses Block

Grant

5.12 In addition, the Working Group has also taken into account the

following principles in determining the appropriate level of the reserve

ceiling:

(a) the proposed ceiling should allow ample room for DSS

schools to cater for teachers’ promotion in the years to come,

additional teachers’ salary increase, as well as routine repairs

and maintenance expenses for standard facilities; and

(b) the proposed ceiling should enable DSS schools to deal with

possible contingencies.

Recommendation(s)

5.13 To enable DSS schools to put in place longer-term development

strategies, the Working Group recommends that the following measures in

respect of the ceiling on accumulated operating reserve be adopted:

(a) the ceiling on the operating reserve which may contain both

government funds and non-government funds should be set at

an amount equal to 100% of the annual total expenditure, i.e.

12 months’ operating expenditure as reflected in the audited

accounts of the same school year;

The Operating Expenses Block Grant includes nearly all the existing recurrent grants to aided schools,

with the exception of the Salaries Grants and grants disbursed on an actual claim or reimbursement basis

such as rents and rates.

(b) only the balance in the operating reserve should be used to

assess whether the schools’ operating reserve exceeds the

ceiling, taking into account the fact that funds in the

designated reserves have specific purposes;

ceiling as reflected in the latest audited accounts should be

given the following options to rectify the situation and they

should be required to indicate the option they choose in their

submission of the audited accounts:

(i) schools may choose to submit a plan on how to reduce

school fees in the forthcoming school year so that the

accumulated operating reserve will drop to below the

ceiling taking into account their own long-term financial

considerations;

(ii) schools may choose to receive less DSS subsidy in the

forthcoming school year, i.e. the amount exceeding the

ceiling will be deducted from the DSS subsidy to be paid

to the school in the next payment;

(iii) schools may choose to return the surplus in excess of the

ceiling to the Government in a specified timeframe; or

(iv) schools may choose to transfer the surplus in excess of

the ceiling to the fee remission/scholarship reserve

subject to the following conditions being met:

 there is no surplus in the fee remission/scholarship

reserve as reflected in the latest audited accounts;

 the utilization rates of the fee remission/scholarship

provisions are 100% or more in the past three

consecutive years; and

 the amount that can be transferred to the fee

remission/scholarship reserve is subject to EDB’s

approval.

Special one-off arrangement

5.14 Given that DSS schools have all along been allowed to keep all

the accumulated reserves of both government and non-government funds, it

is understandable that there exist some DSS schools with significant sums

in their reserves of government and non-government funds that exceed 12

months’ operating expenditure. The Working Group considers that it may

not be fair to apply the options listed in paragraph 5.13 (c) to these DSS

schools right after the new measure of reserve ceiling is introduced.

Recommendation(s)

5.15 The Working Group therefore recommends that DSS schools be

allowed to grandfather the reserve including assets in excess of the reserve

ceiling accumulated before the implementation of the recommendation

concerning reserve ceiling. This notwithstanding, the grandfather

arrangement is subject to the following conditions being complied with:

(a) schools submit to the EDB plans with detailed accounts of

their reserves including their types, proposed usage and,

where necessary, timeframe for deployment endorsed at

SMC/IMC meetings within a specified timeframe to be set by

the EDB; and

(b) the plans are approved by the EDB.

5.16 The Working Group also recommends that the EDB should take

into account schools’ grandfathered reserve when processing any

applications from schools for tuition fee increase or for setting up a

designated reserve for construction, maintenance and upgrading of

above-standard facilities as set out in paragraphs 5.17 to 5.23 below.

Setting aside school fee income for construction, maintenance and

upgrading for above-standard facilities

5.17 DSS schools have all along been given flexibility in using their

operating reserve of non-government funds to finance above-standard

facilities, such as construction of additional floors and swimming pools.

Acknowledging that it is in the interest of both the DSS schools and the

diversity of the school system for the DSS schools to develop their own

characteristics, the Working Group is of view that DSS schools’ flexibility

in using operating reserve of non-government funds to finance

above-standard capital works should be maintained. The Working Group

therefore considers that DSS schools should be allowed, on a need basis, to

set aside a certain portion of their school fee income for constructing

above-standard facilities as well as maintaining and/or upgrading such

facilities.

5.18 Notwithstanding the needs of DSS schools as mentioned in

paragraph 5.17 above, the Working Group is of the opinion that DSS

schools should carry out projects relating to above-standard facilities in an

orderly manner with sufficient advance planning given that the total

expenses required may be quite colossal. Not only could this facilitate the

evening out, over a long period of time, of the funding requirements, this

could also greatly moderate the pressure for tuition fee increase. In

addition, this could better ensure that schools will remain financially sound.

Based on the above considerations, the Working Group proposes that the

amount of school fee incomes that DSS schools can set aside each school

year for the projects on above-standard facilities should be capped.

5.19 Despite the Working Group’s empathetic stance towards some

DSS schools’ desire for above-standard facilities, it feels that such a desire

should be pursued with caution. After all, DSS schools are in general

operating in standard school premises, and any proposed upgrading should

be regarded an exception rather than a norm. The Working Group

therefore takes the view that DSS schools should be required to keep

sufficient liquid reserve to maintain their normal operation without

resorting to school fee increases after setting aside school fee incomes for

the projects. If DSS schools have plans on new above-standard capital

works, they should try to secure funds not only through setting aside tuition

fee income for the purpose but also through other sources such as

fund-raising/donation drives.

5.20 Given the impact of plans to construct/maintain/upgrade

above-standard facilities on a school’s finance, the Working Group feels

that there must be thorough consultations within the school before it makes

a firm decision to proceed.

5.21 Taking all considerations in mind, the Working Group’s original

recommendation is that DSS schools should –

(a) be allowed to set aside reserve of non-government funds for

expenses relating to above-standard facilities only if after the

proposed transfer, there remains cash in the operating

reserves equivalent to six months’ or more of the school’s

expenses;

(b) transfer not more than 10% of the school’s annual tuition fee

incomes; and

the approval of their SMC/IMC and then the EDB.

The Working Group consults the DSS school community on this original

recommendation. Some DSS schools, especially those which charge a

relatively low tuition fee, consider the recommendation too restrictive.

They proposed instead lowering the six months’ operating reserve

requirement to two or three months and relaxing the 10% cap. The

Working Group appreciates their sentiments and eventually agrees to

moderate the limits yet without compromising the considerations set out in

paragraphs 5.18 – 5.20 above. After all, a DSS school should not

undertake plans with significant and long-term financial commitment at the

expense of immediate and short term operational soundness. They should

take into account the characteristics of their student mix, their positioning

and possible impact on its appeal to prospective students and parents

arising from an upward adjustment in tuition fees. The Working Group’s

eventual recommendations are set out in paragraph 5.23 below.

5.22 The Working Group has also discussed the need for defining

projects for which the school fee income can be set aside, e.g. projects

larger than $10 million. After deliberation, it considers that such rigid

requirements may not be warranted given DSS schools’ diversity in levels

of tuition fees and size of operation.

Recommendation(s)

5.23 The Working Group recommends that DSS schools with genuine

needs for constructing, maintaining or upgrading above-standard facilities

be allowed to set up a reserve for the purpose subject to the following

conditions being met:

(a) concrete plans with purposes, timeframe/cashflow and funds

required have to be deliberated and approved by the

SMC/IMC;

(b) Parent-Teacher Associations have to be consulted about the

plans (all parents have to be consulted if the reserve is used

for new above-standard capital works);

facilities should be no more than 10% of the school fee

incomes of each school year;

(d) there is no need to consult the EDB beforehand if after the

proposed transfer, there remains cash in the operating reserve

equivalent in amount to at least six months’ the school’s

expenses. Instead, such a transfer should be detailed in the

audited accounts to be submitted to the EDB;

(e) the EDB’s prior approval should however be sought if the

school intends to transfer more than 10% of the annual school

fee income or if after the transfer, cashflow in the operating

reserve account falls below six months’ expenses of the

school; and

(f) the EDB should not give approval to the application should

the cashflow in the operating reserve account fall below three

months’ expenses after the proposed transfer.

Modifying the prevailing guidelines on investment

5.24 At present, in order to protect the interest of both schools and

students, DSS schools are advised to keep all their incomes derived in such

a manner as to involve minimal risk regardless of whether such income is

derived from the Government or any other sources. Surplus funds which

are not immediately required for use by schools may be put in time deposits

or savings account with banks licensed under the Banking Ordinance.

Any other form of speculative investment (e.g. local equities) is not

recommended because of the risk of financial loss. Nevertheless, DSS

schools which have compelling and well-justified reasons may still invest

with their non-government funds. Schools are required to go through due

process in this regard. First of all, they must consult the schools’ key

stakeholders and seek prior approval of their SSB as well as their

SMC/IMC. They are then required to devise and strictly follow a

school-based mechanism for making investment. The liability for any

financial loss arising from investment shall strictly fall on the school

management responsible for incurring such a loss and shall not be allowed

to be recovered as a charge against the income of the school.

5.25 The Working Group agrees unanimously that DSS schools should

concentrate their effort and resources on learning and teaching so that

students could benefit directly. DSS schools therefore should not indulge

in making investment. While supporting the existing guideline that

investment by DSS schools should not be encouraged, the Working Group

appreciates that some schools may find themselves fully justified to make

certain investments by using their own funds. To draw a fine balance

between these considerations, the Working Group considers that

permissible investment products should be clearly specified with

corresponding guidelines drawn up. In this connection, the Working

Group considers the guidelines prepared by the Social Welfare Department

on investment using Lump Sum Grant by subvented organisations good

references.

Recommendation(s)

5.26 The Working Group therefore recommends that the following

measures be adopted with a view to enhancing the regulation of investment

activities that DSS schools may conduct and ensuring that the financial

situation of DSS schools remains sound and healthy after the investment:

(a) under no circumstances should DSS schools be allowed to

use the funds in the operating reserve or the fee

remission/scholarship reserve for investment;

(b) DSS schools should seek their SMC/IMC’s approval before

making investment decisions and such approval and factors

for consideration must be clearly documented;

service payment reserve, donations with specific purposes

and the reserve for construction, maintenance and upgrading

of above-standard facilities;

(d) DSS schools should only be allowed to invest in (i) HK dollar

bonds; and (ii) HK dollar certificates of deposits according to

the prescribed criteria/conditions; and

Type of Investment Investment Criteria/Conditions

HK dollar bonds or

certificates of deposits

(CD):

 short to medium

term with a maturity

period of one to five

 The credit rating of the issuer

must not be lower than the

rating of A3 given by Moody’s

Investors Service Inc. or A-

given by Standard & Poor’s

Corporation.

years

 The bank must be licensed under

the Banking Ordinance, Cap.

155.

(e) DSS schools should be alerted to the liquidity constraints of

the certificates of deposits and corporate bonds in the

secondary markets and be advised to make allowance for

contingencies in projecting the use of their designated

reserves.

Modifying the prevailing guidelines on purchase of properties

5.27 Given the liquidity constraints of and the high risk level

associated with properties, the Working Group has great reservations about

allowing DSS schools to purchase properties as an investment product.

Though some schools indicate that they wish to purchase quarters for their

non-local staff, the Working Group feels that caution is needed bearing in

mind that different non-local staff may have different preferences for size

and location of their accommodation, having regard to their own personal

preference and family circumstances. Given the rate of return of rental

income to the fixed investment that goes into the acquisition of property

and the risk of depreciation and property market fluctuations, the Working

Group feels that DSS schools should focus the deployment of resources on

improving education quality rather than property acquisition.

Nevertheless, respecting the DSS policy intention of promoting diversity,

the Working Group has deliberately refrained from making prescriptive

recommendations as far as possible. Therefore, instead of recommending

the prohibition of the acquisition of properties, the Working Group prefers

to focus on setting conditions to help ensure that the decisions in favour of

property acquisition are well thought-through. First and foremost, prior

approval of schools’ SSB and SMC/IMC is required. In addition, the

conditions for the purchase of properties should be further strengthened

based on the following considerations to ensure the financial stability of

DSS schools:

(a) DSS schools should still have sufficient liquid reserve to

maintain their normal operation without the need to resort to

school fee increases after the purchase of properties; and

(b) the purchase of properties should not lead to long-term

financial burdens on DSS schools such as mortgage payments

as interests rates may fluctuate widely.

Recommendation(s)

5.28 The Working Group therefore recommends that two requirements

be added to existing requirements for the purchase of properties by DSS

schools:

(a) DSS schools should be required to keep at least an amount

equivalent to six months’ operating expenditure in cash after

the purchase of properties; and

(b) DSS schools should not be allowed to purchase properties

through mortgages or any other borrowing arrangements.

Enhancing the transparency of schools’ financial management

5.29 At present, under the School Development and Accountability

Framework, DSS schools are required to upload their School Development

Plan, Annual School Plans and School Reports (which include a financial

summary) onto their websites for public reference. Nevertheless, the

levels of details of financial information disclosed by DSS schools vary

greatly among schools.

5.30 Sentiments expressed during the PAC deliberation suggested a

public expectation for increased accountability and transparency in the

operation of DSS schools especially on their major items of incomes and

expenditures. The Working Group considers that DSS schools should

enhance the transparency of schools’ financial management as far as

possible. However, the Working Group is also mindful of the difficulty

that over-disclosure may pose to school operations.

Recommendation(s)

5.31 To strike a balance between meeting the public expectation for

increased transparency of the use of school funding and addressing the

practicality at school end, the Working Group recommends that the

following measures be implemented:

(a) DSS schools are required to disclose annually their major

expenditures (including staff remuneration; repair &

maintenance; fee remission/scholarship; learning and

teaching resources; and miscellaneous expenditures) in terms

of percentages of their annual overall expenditures;

(b) DSS schools are required to disclose annually the cumulative

operating reserve in terms of equivalent months of operating

expenditure as well; and

data, a template for enhancing the transparency of schools’

financial management should be developed. To further

ensure that the disclosure will be fit-for-purpose and not

over-burdensome, the EDB should develop the template in

consultation with the Hong Kong DSS Schools Council.

Chapter Six

Training for School Personnel of the

Direct Subsidy Scheme Schools

Background

The AC has expressed concern about the non-compliance of

requirements relating to financial and human resources management of

DSS schools. Though the majority of the problems unearthed by AC are

rather technical in nature, the fact that only a handful of schools were in

full compliance is a cause of concern. To address this general problem of

non-compliance, the PAC has recommended that the Secretary for

Education should provide training for staff of DSS schools to familiarize

them with EDB’s various requirements in financial management and

human resources management.

Details of the relevant views of the AC and

PAC are at Annex 4

and Annex 5 respectively.

Deliberations and Recommendations of the Working Group

Training for DSS schools

6.2 Other than training for tackling the non-compliance problems, the

Working Group considers that training is also essential to prepare DSS

schools to take forward the new proposed improvement measures for

enhancing the governance, management and administration of DSS

schools.

6.3 To ensure that the training programmes will meet the practical

needs of DSS schools, the Working Group takes the view that expertise

from different professional sectors such as financial management and

human resources management should be tapped in designing or even

running the entirety or parts of the programmes.

Recommendation(s)

6.4 The Working Group recommends that the training programmes as

set out in paragraphs 6.5 to 6.10 be adopted and a steering committee as

detailed in paragraphs 6.11 to 6.12 be set up to oversee the design and

implementation of the training programmes.

Programme objectives

6.5 The proposed training programmes should aim to:

(a) familiarize school personnel with EDB’s various requirements

in financial management and human resources management;

and

(b) equip and develop school personnel with the necessary

knowledge and skills to take forward various improvement

measures regarding the enhancement of school governance as

well as the administration and management of DSS schools as

recommended by the Working Group and endorsed by the

Secretary for Education. These improvement measures are:

(i) schools will be required to conduct self-assessment

according to a new set of self-evaluation checklists on

major school policies and issues as recommended in

paragraph 4.11;

(ii) schools will be required to set up a governance review

sub-committee to assist their SMC/IMC in reviewing

management and financial control systems and processes

key to the schools’ sound governance as recommended in

paragraph 4.17;

(iii) schools will be required to put up major school policies

and issues to their SMC/IMC for discussion and decision

as recommended in paragraph 4.19; and

(iv) schools will be required to undergo management and

financial audit as recommended in paragraph 4.21.

Programme framework

6.6 The proposed framework of the training programmes should

consist of the following parts:

(a) EDB’s various requirements in financial management and

human resources management;

(b) essential components and formulation of implementation plans

for the new improvement measures as set out in paragraphs

6.5(b) above ; and

steering committee.

Design and delivery

6.7 Practicality and experiential approach should be the main strategy

for designing the training programmes, including features to facilitate DSS

schools to get the practical know-how on formulating their improvement

plans:

(a) at the end of the structured course, participants will be able to

take home skeletons / outlines of implementable plans

pertaining to the new improvement measures (including some

samples of monitoring procedures with the elements of

check-and-balance and documentations) with substantive

contents to be filled up by respective schools through internal

deliberations; and

(b) as a follow-up to the above structured course, at the school

level, respective schools may choose to identify training

agencies/consultants to help empower their school personnel

to design and formulate the detailed school-based

implementation plans (including the necessary procedures and

documentations) taking into account its vision, governance

structure, general school-based policies and respective

circumstantial conditions.

6.8 To facilitate collaboration of school personnel in the school

improvement process, each school should be required to send a team

consisting of the principal, management staff, supervisor or school manager

(and other staff as considered appropriate by schools) to attend the training

programmes.

6.9 Training agencies or consultants in the commercial and/or

professional sectors may serve as course providers and the overall course

designer. Veteran principals may also be invited to share their practical

experience in certain areas. EDB officers should be involved in sessions

explaining EDB requirements, policies and guidelines. Besides, visits to

schools and private enterprises etc. whose practices are of useful reference

could be arranged where appropriate.

6.10 A set of “tool kits” should be provided for school personnel of

DSS schools such as school managers to facilitate their daily operation.

Setting up a steering committee

6.11 A steering committee on training for DSS school personnel

comprising representatives from the Hong Kong DSS Schools Council,

non-school sector professionals and colleagues from different EDB

Divisions should be set up. The steering committee should be

accountable to the Permanent Secretary for Education.

6.12 One particular aspect that the steering committee should address is

sustainability, e.g. how the training programmes can help internalize the

enhanced governance framework. In this regard, the steering committee

should, in the light of the evaluation of the first round of workshops,

consider if training should be conducted at regular intervals and how new

staff or staff who have newly assumed management positions may be

imbued with the enhanced management culture.

Training for managers of DSS schools

6.13 The EDB has been organizing structured training programmes for

school managers of aided schools. The Working Group is of the view that

training sessions with topics relevant to DSS schools should also be open to

participation by school managers of DSS schools.

Recommendation(s)

6.14 The Working Group therefore recommends that the existing

practice of inviting school managers of DSS schools to the structured

training programmes for school managers should continue. To cater for

the special needs of managers of DSS schools, the Working Group has also

recommended that an optional module on deployment of resources

specifically for DSS school managers be added to the existing programmes.

Chapter Seven

Measures to Ensure Compliance of Requirements

of the Direct Subsidy Scheme by Schools

Background

Currently, if a DSS school is found to be in breach of EDB’s

guidelines, the EDB will issue an advisory letter to the school demanding

compliance or rectification within a specified time. If no action is taken

or the school fails to comply with the guideline or rectify the malpractice

within the specified time, the EDB will, depending on the gravity of the

non-compliance or malpractice, issue a follow-up advisory letter or a

warning letter to the school. Follow-up investigation visits or reviews

will be conducted to ensure timely rectification of the situation.

7.2 In addition to the issuance of advisory and warning letters, the

EDB may appoint school managers to the SMC, and report to relevant law

enforcement agencies should there be suspected illegal and corruption

cases. If non-compliance or malpractice continues even after warning has

been given and intervention has been taken by senior EDB officers, then

the EDB may withdraw the subsidy payable to the school, hence resulting

in the school’s loss of DSS status. In extreme situations, the EDB may

also cancel the school’s registration.

7.3 While it is lawful for the EDB to withdraw the subsidy payable to

a DSS school thus depriving the school of DSS status or even cancel the

registration of a school if it is not managed satisfactorily, the EDB has

never done so. It has always exercised restraint and refrained from

resorting to such extreme options taking into account the interest of the

students studying in the school. Nevertheless, past experience indicates

that there are occasionally a handful of DSS schools that have kept on

ignoring EDB’s advice and warnings. As a matter of fact, a sizeable

majority of the malpractices included in the AC’s report are no news to the

EDB. They have been the subjects of advisory and/or warning letters

issued to DSS schools.

Deliberations and Recommendations of the Working Group

7.4 The Working Group considers it necessary to enhance deterrence

against persistent non-compliance and malpractice. In deliberating

measures to enhance the existing mechanism to deal with non-compliance

or malpractice, it also shares the EDB’s keen concern about the interests of

the students and considers measures affecting students not something that

should be taken lightly. In the event, the Working Group prefers

transparency and greater deployment of schools’ internal governance

mechanism to address and deter non-compliance and malpractice.

Recommendation(s)

7.5 The Working Group recommends that on top of the existing

measures as set out in paragraphs 7.2 and 7.3 above, the following new

measures be put in place:

(a) escalation of advisory letters to supervisors at the earliest

opportunity – if a school, without any reasonable justification,

fails to comply with a rule/guideline or rectify the

malpractice within a given time-frame after the principal of

the school is served with an advisory/warning letter,

follow-up advisory/warning letters will be issued to the

supervisor of the school, copied to the school principal;

(b) escalation of warning letters to SMC/IMC members at the

earliest opportunity – if a school, without any reasonable

justification, fails to comply with a rule/guideline or rectify

the malpractice within a given time-frame after a

advisory/warning letter has been written to the supervisor of

the school, follow-up advisory/warning letters will be sent to

the supervisor again but this time, the letter will be copied to

all the SMC/IMC members of the school as well;

exhaustion of the steps in paragraphs 7.5(a) and 7.5(b) above

and if the malpractice remains to be rectified, the regional

Principal Education Officers of the EDB may put up the case

for discussion by the Task Force on DSS. With the Task

Force’s endorsement, the EDB will post the non-compliance

(including a description of the malpractice) with the school

concerned named on the EDB’s website; and

(d) suspension of DSS subsidy – if a school fails to comply with

an important requirement or rectify serious malpractice after

exhaustion of the steps mentioned in paragraphs 7.5(a) and

7.5 (b) above, the Task Force on DSS may decide to take the

measure in paragraph 7.5 (c) prior to, or in addition to,

withholding part of the DSS subsidy of the school until

rectification is made. In order to ensure that the interests of

students are not unduly affected, the EDB will assess the

financial situation of the school before withholding the

school’s DSS subsidy.

7.6 The Working Group expects that the options set out in paragraphs

7.5(a) and 7.5(b) above, which amount to drawing the malpractices and

non-compliance to the attention of DSS schools’ governance bodies, should

be efficacious deterrent measures. They should enable the governing

bodies to intervene and rectify the situation at an early opportunity. The

Working Group anticipates that the circumstances necessitating resort to

the measures in paragraphs 7.5(c) and 7.5(d) should be few and far between.

The Working Group believes that the recommended sequence of measures

can enhance enforcement efficacy by the EDB while respecting DSS

schools’ internal governance.

Chapter Eight

Status of Li Po Chun United World College of Hong Kong

in the Direct Subsidy Scheme

Background

Li Po Chun United World College (LPCUWC) admitted to the DSS

When the DSS was introduced in 1991, international schools were

eligible to join the scheme. There were altogether five schools of such

background admitted to the DSS, including LPCUWC which was admitted

in 1994.

Review of the DSS status of international schools

8.2 In July 1995, the then Education Department (ED) completed a

review, which aimed to examine the demand for international school places

in the following five years in the light of the need to maintain and develop

Hong Kong as an international business and financial centre. The

Working Group responsible for the review recommended that international

schools should no longer remain in or be eligible for admission into the

DSS having regard to the following considerations:

(a) the students primarily served by international schools were

non-local students of particular cultural, racial or linguistic

groups who were different from those primarily served by DSS

schools, i.e. local students; and

(b) international schools

would become eligible for additional

financial assistance, i.e. capital assistance.

8.3 As to LPCUWC, the then ED and Education and Manpower

Bureau (EMB) held the view that this school was unique in its nature and

was different from other international schools. After careful deliberation

in 1999, the then ED and EMB decided to allow LPCUWC to remain in the

DSS while the other four international schools were to be gradually phased

out from the DSS. LPCUWC was unique and different from other

international schools in the following ways:

Before the review, international schools not under the DSS or English Schools Foundation were not

eligible for any capital assistance.

(a) the students of LPCUWC came from different parts of the

world and were the “ elite" of their countries;

(b) there was a reciprocal arrangement between various

colleges run by the school sponsor, the United World

Colleges. Under the arrangement, for every student

admitted from another country to LPCUWC, Hong Kong

could benefit by sending in return one local student to a

college run by the School Sponsor of that country;

a particular ethnic or cultural group; and

(d) the learning experience was quality education for our local

students.

(LPCUWC was so informed by the then ED in writing in October 1999.)

Reconsidering the DSS status of LPCUWC

8.4 In June 2002, the then ED reconsidered the DSS status of

LPCUWC. It confirmed the analysis recapitulated in paragraph 8.3 above.

Given the unique nature of LPCUWC, the then ED ruled that the status quo

should be maintained.

Recommendations put forward by the Audit Report & the PAC Report

8.5 In the Audit Report released in October 2010, the AC queried why

LPCUWC was not phased out from the DSS as were the case for the other

four international schools. The AC therefore recommended that the EDB

should critically review the justifications for continuing to allow LPCUWC

to remain in the DSS and take action to address the matter, if necessary. It

was also recommended in the PAC Report released in February 2011 that

the EDB should take appropriate measures to address the matter as

necessary.

Deliberations and Recommendations of the Working Group

8.6 The Working Group has carefully reviewed the reasons put

forward by the then ED and EMB justifying LPCUWC to remain in the

DSS. After deliberation, the Working Group fully concurs with the views

of the then ED and EMB that LPCUWC is unique in nature. The Working

Group also takes the view that most of the reasons put forward by the then

ED and EMB are still sound and valid. It also notes that the school’s

uniqueness has remained unchanged since the two said reviews in 1999 and

2002. Considerations made by the Working Group are detailed in the

ensuing paragraphs.

Need to sustain such provision of invaluable international perspectives

and learning experiences for local students

8.7 Unlike other international secondary schools which usually offer a

full secondary curriculum, LPCUWC has been offering two-year

pre-university education, making it unique in this respect and not in direct

competition with other international schools or local schools in Hong Kong.

LPCUWC is also characterized by the breadth and depth of activities that

students undertake outside of the “taught” curriculum. Students are

involved in over 90 different activities based around the themes of

Creativity, Action and Service. They also participate in at least one

activities week either in China or the rest of the world per year. In this

regard, the school policy is in line with the New Senior Secondary

curriculum’s spirit of providing necessary exposure of students for

balanced and whole-person development.

8.8 More importantly, LPCUWC, being one of the United World

Colleges

(UWC), is unique with its students coming from different parts

of the world and supported by various scholarships. Drawn from all

nations, the non-local students are selected purely on merit, regardless of

race, religion, nationality, background or financial means. The boarding

education offered by LPCUWC for all students, local and foreign alike,

also facilitates cultural exchanges among students not just in the learning

process but also in their everyday life.

8.9 The sponsoring body of the school is running various colleges in

the world with reciprocal arrangements in the admission of students and

scholarship arrangements. Students in Hong Kong enjoy the benefits of

attending various colleges in other education systems world-wide, which

will undoubtedly help them broaden their horizon, explore and develop an

As of today, UWC has 13 colleges and schools (including LPCUWC) across five continents all with

distinctive characters but sharing the same mission, ethos and values. At most schools and colleges, an

average of 70 different nationalities are represented at any one time, and embracing the many nationalities

present is an important feature of UWC life, helping students to explore and develop an international

appreciation. Academic achievements are put into perspective with a demanding mix of community

engagement, international affairs, physical activities and creative pursuits.

international appreciation. The benefits brought about by this unique

arrangement to Hong Kong students are definitely enormous, and any

changes upsetting these arrangements are not in the interest of Hong Kong

students.

DSS being a suitable funding mode for LPCUWC

8.10 It is noteworthy that some UWC in other countries are also

receiving some forms of subsidies from the governments / provincial

governments of the countries / provinces in which the UWC are situated.

In Hong Kong, there are basically two forms in which the Government

provides subsidy to schools, viz. either aided or DSS. Obviously, the

aided mode (which provides subsidy on a per class basis) would not be

appropriate for LPCUWC given that at least half of its students are

non-local students from other parts of the world. The admission of

LPCUWC to the DSS enables the Government to provide per capita

financial support to local students only.

8.11 By virtue of its status as a DSS school, LPCUWC has to comply

with various requirements to help maximize benefits to local students.

First, for other UWCs, they normally admit 25% to 30% of local students

and the rest from other countries. As for LPCUWC, since its admission to

DSS, it is required to admit over 40% of local students

. This admission

arrangement enables more local students in Hong Kong to enjoy an

invaluable opportunity to acquire an international perspective in a truly

culturally diversified environment while still being physically in Hong

Kong. Second, under the DSS, LPCUWC, being in receipt of recurrent

government subsidies, has to set aside school income for fee

remission/scholarship purposes in accordance with the DSS requirements,

thus supporting many local students to study in such a culture-rich and

diversified learning environment. All along, LPCUWC has been generous

in providing assistance to its students. The Hong Kong UWC Committee

and LPCUWC offer approximately 60 scholarships to each level of Hong

Kong students including those

going to study in UWCs in other countries

each year. Among the local students in LPCUWC, about 70% of them

were offered fee remission / scholarship in the past three school years.

Number and percentage of local and non-local students in the past three school years

School year Local Students (%) Non-local Students (%) Total No. of Students

2010/11 116 (45%) 140 (55%) 256

2009/10 123 (48%) 133 (52%) 256

2008/09 125 (49%) 131 (51%) 256

8.12 The fact that LPCUWC is provided with recurrent government

subsidies, coupled with the generous financial assistance provided by

LPCUWC for its students as mentioned in paragraph 8.11 above, enables

local students in Hong Kong to enjoy all the benefits brought about by

LPCUWC at lower school fees.

8.13 To conclude, LPCUWC is an education institute that Hong Kong

should value in consideration of its culturally diversified school

environment and membership in a world league of UWC network. Any

change in policy which may make the UWC feel unwelcome here or to

erode the sustainability of LPCUWC would not be in the interest of Hong

Kong. Instead, LPCUWC should be regarded as a much valued unique

member of the Hong Kong school system. Should there be any change to

its existing funding mode, fewer students would have the chance to enjoy

such a multi-cultural and pluralistic learning environment. This would not

be in the interest of local students. Moreover, Hong Kong will likely be

criticised for withdrawing the financial support for such a renowned

international education body. It in turn may undermine the image of Hong

Kong as a metropolitan city. It also runs contrary to the vision of

developing Hong Kong as an education hub.

Recommendation(s)

8.14 Having reviewed the justifications put forward by the then ED

and EMB for allowing LPCUWC to remain in the DSS in 1999 and 2002,

and taken into account the uniqueness of LPCUWC, the benefits it brings

to students in Hong Kong and the downside of changing the funding mode

of LPCUWC as set out in paragraphs 8.7 to 8.13 above, the Working Group

recommends the continuation of the status quo, i.e. that LPCUWC be

allowed to continue to remain in the DSS.

Annex 1

Working Group on Direct Subsidy Scheme

Membership List

Chairperson: Mrs Cherry TSE

Permanent Secretary for

Education

Members:

Ms Susanna CHIU

Ms Virginia CHOI

Ms LAU Ka-shi

Mrs Justina LEUNG

Mr PANG Yiu-kai

Dr Carlye TSUI

Mrs Michelle WONG

Deputy Secretary for Education

Mr Steve LEE

Principal Assistant Secretary

(School Development)

Mrs Lily TSANG

Principal Assistant Secretary

(Finance)

Miss WU Po-ling

Principal Assistant Secretary

(School Administration &

Support)

Secretary: Mr WOO Chun-sing Senior Education Officer

(School Administration &

Support)

Annex 2

Consultation Activities Conducted by

the Working Group on Direct Subsidy Scheme/

the Education Bureau

Date Consultation Activities

1 24 February

2011

Luncheon meeting between Working Group members

and representatives of the HK DSS Schools Council

2 22 March

2011

Seeking the HK DSS Schools Council’s views on the

initial proposed improvement measures during the

regular meeting between the EDB and the Council

3 24 March

2011 (AM)

Visit to St Paul’s Co-educational College by Working

Group members

4 24 March

2011 (PM)

Visit to Good Hope School by Working Group

members

5 1 April 2011

(AM)

Visit to Hong Kong Baptist University Affiliated

School Wong Kam Fai Secondary and Primary

School by Working Group members

6 1 April 2011

(PM)

Visit to The Hong Kong Chinese Christian Churches

Union Logos Academy by Working Group members

7 7 April 2011

(AM)

Visit to Fanling Lutheran Secondary School by

Working Group members

8 7 April 2011

(PM)

Visit to Fukien Secondary School by Working Group

members

9 2 June 2011 Seeking the HK DSS Schools Council’s views on the

initial proposed improvement measures during the

regular meeting between EDB and the Council

10 19 July 2011

Working Group’s consultation meeting with members

of the Executive Committee of the HK DSS Schools

Council on the proposed improvement measures

11 7 September Working Group’s 1

consultation session on the

Date Consultation Activities

2011 proposed improvement measures - for

SSBs/SMCs/IMCs representatives

12 8 September

2011

Working Group’s 2

consultation session on the

proposed improvement measures - for

SSBs/SMCs/IMCs representatives

13 9 September

2011

Working Group’s 3

consultation session on the

proposed improvement measures - for

principals/senior administrative staff

14 15 September

2011

Working Group’s 4

consultation session on the

proposed improvement measures - for

principals/senior administrative staff

15 16 September

2011

Working Group’s 5

consultation session on the

proposed improvement measures - for

principals/senior administrative staff

16 30 November

2011

EDB’s consultation meeting with relevant members

of the Committee on Home-School Co-operation on

the proposed improvement measures

17 1 December

2011

EDB’s consultation meeting with principals as well as

members of the Executive Committee of the HK DSS

Schools Council on the proposed improvement

measures

18 16 December

2011

Working Group’s consultation meeting with members

of the Executive Committee the HK DSS Schools

Council on three major areas of the proposed

improvement measures

19 17 December

2011

Working Group’s consultation meeting with

SSBs/SMCs/IMCs representatives on three major

areas of the proposed improvement measures

Annex 3

Summary of Working Group’s Recommendations

No. Recommendation

Improvement Measures for the Fee Remission/Scholarship Schemes

1 Paragraph 3.5

The Working Group recommends that the EDB should keep in

view the implementation of the improvement measures of

enhancing the transparency and accessibility of information on fee

remission/scholarship schemes in individual DSS schools and

provide advice or intervention to schools concerned where

necessary.

2 Paragraph 3.8

The Working Group recommends that DSS schools should

continue to be given the flexibility to devise their school-based

arrangements to offer financial assistance to needy students over

and above the current requirements outlined in paragraphs 3.1, 3.2

and 3.4.

3 Paragraph 3.12

The Working Group recommends that:

(a) DSS schools be encouraged to continue to explore ways to

better utilize their fee remission/scholarship reserve; and

(b) the proposal of setting up a centralized fund for fee

remission/scholarship purposes be shelved and only be

revisited if the situation of under-utilization of fee

remission/scholarship reserve by DSS schools persists.

4 Paragraph 3.15

The Working Group does not recommend setting a cap for

scholarship.

5 Paragraph 3.18

The Working Group does not recommend mandating DSS schools

to surrender a percentage of their school places for central

allocation by the EDB.

6 Paragraph 3.24

The Working Group recommends the adoption of the measures set

out below:

No. Recommendation

(a) DSS schools meeting the following criteria should be allowed

to apply to the EDB for exemption from the requirement of

adopting eligibility criteria no less favourable than those of the

government financial assistance schemes to needy students:

(i) the utilization rates of their fee remission/scholarship

provisions are 100% or more as reflected in the audited

accounts of the past three consecutive years; and

(ii) in overall terms, during the three years in question, two

thirds of their fee remission/scholarship provisions or

more have been used for fee remission purposes as

confirmed by the schools.

(b) DSS schools given exemption should ensure that:

(i) students receiving fee remission before the schools

adopt the revised eligibility criteria will not be affected,

i.e. they will continue to receive fee remission under the

previous eligibility criteria until they graduate from the

schools; and

(ii) sufficient notice must be given to prospective

parents/students before implementing the new eligibility

criteria; and in any case, the revision must be made

available for public consumption as per the measures set

out in paragraph 3.4;

(i) the average utilization rate of their fee

remission/scholarship provisions under the revised

eligibility criteria in the past three years is less than

80%; or

(ii) in the past three years, on average, less than two thirds

of their fee remission/scholarship provisions under the

revised eligibility criteria are used for fee remission

purposes.

7 Paragraphs 3.27 & 3.28

The Working Group recommends that through-train secondary and

primary schools be allowed to transfer a maximum of 50% of the

fee remission/scholarship reserves of the linked primary school to

the linked secondary school should they meet the following

conditions and obtain prior approval from the SMC/IMC:

No. Recommendation

(a) the utilization rates of the fee remission/scholarship provisions

of the linked secondary school are 100% or more as reflected

in the audited accounts of the past three consecutive years; and

(b) two thirds of the fee remission/scholarship provisions or more

of the linked secondary school are used for fee remission

purposes as confirmed by the schools.

Following the same logic, the Working Group also recommends

that similar flexibility under identical terms be allowed for the

transfer of fee remission/scholarship reserves of the secondary

school to the linked primary school.

Strengthening the Governance and Internal Control of DSS Schools

8 Paragraph 4.7

In respect of DSS schools governed by SMC/MC, the Working

Group recommends the following:

(a) at school level, the EDB to consult schools on disclosure of

their composition on the EDB’s homepage;

(b) at individual school manager level, the EDB to add a

checkbox to the application form for registration as a manager

with a view to seeking his/her consent of the EDB’s disclosure

of his/her information including the name, tenure of

office/date of registration and category of school manager.

As for serving managers of SMC/MC, the EDB should seek

their consent to similar disclosure through an ad hoc exercise;

and

proposed disclosure, the EDB to add a remark indicating the

number and categories, if applicable, of managers who have

not given such consent on the relevant part of the EDB’s

homepage.

9 Paragraph 4.11

The Working Group recommends that:

(a) all DSS schools be required to conduct self-assessment by

completing the Checklist regularly;

(b) while the EDB would collaborate with the Hong Kong DSS

Schools Council in the development of the Checklist,

individual DSS schools should be given flexibility in adapting

No. Recommendation

or modifying the Checklist to suit their own needs given that

their needs do vary; and

effective use of the Checklist with a view to promoting over

time the internalization of a self-evaluation culture in DSS

schools.

10 Paragraph 4.17

The Working Group recommends that all DSS schools be required

to set up a governance review sub-committee (or any name the

SMC/IMC sees fit) to assist the SMC/IMC in reviewing the system

integrity of various management and financial control processes

with regard to the requirements below:

(a) A governance review sub-committee (or any other name the

SMC/IMC sees fit) responsible for conducting regular system

reviews of various key management and financial control

systems and processes has to be set up by DSS schools by the

2013/14 school year;

(b) Specifically, the governance review sub-committee should

review school-based policies and processes in respect of the

following aspects:

(i) human resources management matters including staff

recruitment, promotion, remuneration, etc;

(ii) financial management matters including school

budgeting, financial reporting, procurement, investment,

transfer of funds from the operating reserve to designated

reserves, etc;

(iii) operation of school fee remission/scholarship schemes;

Other management functions can be assigned to the

governance review sub-committee as individual SMC/IMC

deems appropriate;

terms of a viable quorum for a meeting and for the sake of

continuity, the governance review sub-committee should have

a minimum of three members, with one member preferably

with experience and qualification in accounting/financial

management and one member being a manager of the school.

To avoid conflict of interests, parents of students studying in

No. Recommendation

the school should not be invited as a member of the

sub-committee. In addition, all the members should not be

among the paid staff of the school;

(d) In principle, the governance review sub-committee is required

to complete a comprehensive review of the school-based

policies and processes as set out in (b) (i), (ii) and (iii) and

submit a comprehensive report to the SMC/IMC within a

three-year cycle. Within the three-year cycle, the SMC/IMC

should determine the focus of its annual review each year and

the governance review sub-committee should then submit a

focused review report to the SMC/IMC annually; and

(e) While paid staff of a DSS school including the principal and

senior teachers/heads of functional committees of the school

should not serve as member(s) of the governance review

sub-committee, they may, at the discretion of the governance

review sub-committee, attend meetings or serve as resource

persons to facilitate the internal review. Nevertheless, at the

review sub-committee meeting(s) where the annual focused

report or the comprehensive report is to be finalized before

submission to the SMC/IMC, attendance should be confined

to official members of the governance review sub-committee

only.

11 Paragraph 4.19

The Working Group recommends making it a mandatory

requirement for DSS schools to put up essential matters as set out

below for discussion and approval at SMC/IMC meetings:

(a) the human resource policies for senior teaching and

administrative posts such as the recruitment, appointment,

promotion and remuneration packages of senior teaching and

administrative staff;

(b) annual school budgets and financial report/audited account

including acceptance of donations and fund raising activities;

determination of what constitutes “large-scale” works);

(d) procurement of services or goods through tendering with

significant financial implications (including the SMC/IMC’s

determination of the thresholds for different modes of

procurement);

No. Recommendation

(e) operation of the fee remission/scholarship scheme including

an annual operational summary and criteria for the schemes;

(f) fee revision proposals;

(g) investment policy and update;

(h) advisory letter(s) specifying for the attention of the SMC/IMC

and/or any warning letter(s) (e.g. the management letter from

EDB’s School Audit Section); and

(i) self-evaluation on schools’ academic as well as non-academic

performance under the School Development and

Accountability Framework, including the endorsement of

School Development Plan, Annual School Plan and School

Report.

12 Paragraph 4.21

The Working Group recommends that:

(a) the existing audit inspection of DSS schools should be

replaced by a management and financial audit;

(b) relevant training be provided for DSS schools before the

commencement of the management and financial audit from

the 2014/15 school year to allow DSS schools to acquire

sufficient know-how and have ample time to prepare for the

enhanced audit; and

of the management and financial audit of DSS schools to

determine whether the management and financial audit

should become an on-going measure; and if so, how.

Strengthening the Financial Management of DSS Schools

13 Paragraph 5.13

To enable DSS schools to put in place longer-term development

strategies, the Working Group recommends that the following

measures in respect of the ceiling on accumulated operating

reserve be adopted:

(a) the ceiling on the operating reserve which may contain both

government funds and non-government funds should be set at

an amount equal to 100% of the annual total expenditure, i.e.

12 months’ operating expenditure as reflected in the audited

accounts of the same school year;

No. Recommendation

(b) only the balance in the operating reserve should be used to

assess whether the schools’ operating reserve exceeds the

ceiling, taking into account the fact that funds in the

designated reserves have specific purposes;

ceiling as reflected in the latest audited accounts should be

given the following options to rectify the situation and they

should be required to indicate the option they choose in their

submission of the audited accounts:

(i) schools may choose to submit a plan on how to reduce

school fees in the forthcoming school year so that the

accumulated operating reserve will drop to below the

ceiling taking into account their own long-term financial

considerations;

(ii) schools may choose to receive less DSS subsidy in the

forthcoming school year - the amount exceeding the

ceiling will be deducted from the DSS subsidy to be

paid to the school in the next payment;

(iii) schools may choose to return the surplus in excess of the

ceiling to the Government in a specified timeframe; or

(iv) schools may choose to transfer the surplus in excess of

the ceiling to the fee remission/scholarship reserve

subject to the following conditions being met:

 there is no surplus in the fee remission/scholarship

reserve as reflected in the latest audited accounts;

 the utilization rates of the fee remission/scholarship

provisions are 100% or more in the past three

consecutive years; and

 the amount that can be transferred to the fee

remission/scholarship reserve is subject to EDB’s

approval.

14 Paragraphs 5.15 & 5.16

The Working Group recommends that DSS schools be allowed to

grandfather the reserve including assets in excess of the reserve

ceiling accumulated before the implementation of the

recommendation concerning reserve ceiling. This

notwithstanding, the grandfather arrangement is subject to the

No. Recommendation

following conditions being complied with:

(a) schools submit to the EDB plans with detailed accounts of

their reserves including their types, proposed usage and, where

necessary, timeframe for deployment endorsed at SMC/IMC

meetings within a specified timeframe to be set by the EDB;

and

(b) the plans are approved by the EDB.

The Working Group also recommends that the EDB should take

into account schools’ grandfathered reserve when processing any

applications from schools for tuition fee increase or for setting up a

designated reserve for construction, maintenance and upgrading of

above-standard facilities as recommended in paragraph 5.23.

15 Paragraph 5.23

The Working Group recommends that DSS schools with genuine

needs for constructing, maintaining or upgrading above-standard

facilities be allowed to set up a reserve for the purpose subject to

the following conditions being met:

(a) concrete plans with purposes, timeframe/cashflow and funds

required have to be deliberated and approved by the

SMC/IMC;

(b) Parent-Teacher Associations have to be consulted about the

plans (all parents have to be consulted if the reserve is used for

new above-standard capital works);

facilities should be no more than 10% of the school fee

incomes of each school year;

(d) there is no need to consult the EDB beforehand if after the

proposed transfer, there remains cash in the operating reserve

equivalent in amount to at least six months’ the school’s

expenses. Instead, such a transfer should be detailed in the

audited accounts to be submitted to the EDB;

(e) the EDB’s prior approval should however be sought if the

school intends to transfer more than 10% of the annual school

fee income or if after the transfer, cashflow in the operating

reserve account falls below six months’ expenses of the

school; and

(f) the EDB should not give approval to the application should the

No. Recommendation

cashflow in the operating reserve account fall below three

months’ expenses after the proposed transfer.

16 Paragraph 5.26

The Working Group recommends that the following measures be

adopted with a view to enhancing the regulation of investment

activities that DSS schools may conduct and ensuring that the

financial situation of DSS schools remains sound and healthy after

the investment:

(a) under no circumstances should DSS schools be allowed to use

the funds in the operating reserve or the fee

remission/scholarship reserve for investment;

(b) DSS schools should seek their SMC/IMC’s approval before

making investment decisions and such approval and factors for

consideration must be clearly documented;

service payment reserve, donations with specific purposes and

the reserve for construction, maintenance and upgrading of

above-standard facilities;

(d) DSS schools should only be allowed to invest in (i) HK dollar

bonds; and (ii) HK dollar certificates of deposits according to

the prescribed criteria/conditions; and

Type of Investment Investment Criteria/Conditions

HK dollar bonds or

certificates of deposits

(CD):

 short to medium

term with a maturity

period of one to five

years

 The credit rating of the issuer

must not be lower than the rating

of A3 given by Moody’s

Investors Service Inc. or A-

given by Standard & Poor’s

Corporation.

 The bank must be licensed under

the Banking Ordinance, Cap.

155.

(e) DSS schools should be alerted to the liquidity constraints of

the certificates of deposits and corporate bonds in the

secondary markets and be advised to make allowance for

contingencies in projecting the use of their designated

reserves.

17 Paragraph 5.28

No. Recommendation

The Working Group recommends that two requirements be added

to existing requirements for the purchase of properties by DSS

schools:

(a) DSS schools should be required to keep at least an amount

equivalent to six months’ operating expenditure in cash after

the purchase of properties; and

(b) DSS schools should not be allowed to purchase properties

through mortgages or any other borrowing arrangements.

18 Paragraph 5.31

To strike a balance between meeting the public expectation for

increased transparency of the use of school funding and addressing

the practicality at school end, the Working Group recommends that

the following measures be implemented:

(a) DSS schools are required to disclose annually their major

expenditures (including staff remuneration; repair &

maintenance; fee remission/scholarship; learning and teaching

resources; and miscellaneous expenditures) in terms of

percentages of their annual overall expenditures;

(b) DSS schools are required to disclose annually the cumulative

operating reserve in terms of equivalent months of operating

expenditure as well; and

data, a template for enhancing the transparency of school’s

financial management should be developed. To further

ensure that the disclosure will be fit-for-purpose and not

over-burdensome, EDB should develop the template in

consultation with the Hong Kong DSS Schools Council.

Training for School Personnel of the DSS Schools

19 Paragraph 6.4

To prepare DSS schools to take forward the new proposed

improvement measures for enhancing the governance,

management and administration of DSS schools and to tackle the

non-compliance problems, the Working Group recommends that

the training programmes as set out in paragraphs 6.5 to 6.10 be

adopted and a steering committee as detailed in paragraphs 6.11 to

6.12 be set up to oversee the design and implementation of the

training programmes.

No. Recommendation

20 Paragraph 6.14

The Working Group recommends that the existing practice of

inviting school managers of DSS schools to the structured training

programmes for school managers should continue. To cater for

the special needs of managers of DSS schools, the Working Group

has also recommended that an optional module on deployment of

resources specifically for DSS school managers be added to the

existing programmes.

Measures to Ensure Compliance of Requirements of the Direct

Subsidy Scheme by Schools

21 Paragraph 7.5

The Working Group recommends that on top of the existing

measures as set out in paragraphs 7.2 and 7.3, the following new

measures be put in place:

(a) escalation of advisory letters to supervisors at the earliest

opportunity – if a school, without any reasonable justification,

fails to comply with a rule/guideline or rectify the malpractice

within a given time-frame after the principal of the school is

served with an advisory/warning letter, follow-up

advisory/warning letters will be issued to the supervisor of the

school, copied to the school principal;

(b) escalation of warning letters to SMC/IMC members at the

earliest opportunity – if a school, without any reasonable

justification, fails to comply with a rule/guideline or rectify the

malpractice within a given time-frame after a

advisory/warning letter has been written to the supervisor of

the school, follow-up advisory/warning letters will be sent to

the supervisor again but this time, the letter will be copied to

all the SMC/IMC members of the school as well;

exhaustion of the steps in paragraphs 7.5(a) and 7.5(b) above

and if the malpractice remains to be rectified, the regional

Principal Education Officers of the EDB may put up the case

for discussion by the Task Force on DSS. With the Task

Force’s endorsement, the EDB will post the non-compliance

(including a description of the malpractice) with the school

concerned named on the EDB’s website; and

(d) suspension of DSS subsidy – if a school fails to comply with

an important requirement or rectify serious malpractice after

No. Recommendation

exhaustion of the steps mentioned in paragraphs 7.5(a) and

7.5(b) above, the Task Force on DSS may decide to take the

measure in paragraph 7.5(c) prior to, or in addition to,

withholding part of the DSS subsidy of the school until

rectification is made. In order to ensure that the interests of

students are not unduly affected, the EDB will assess the

financial situation of the school before withholding the

school’s DSS subsidy.

Status of Li Po Chun United World College of Hong Kong in the Direct

Subsidy Scheme

22 Paragraph 8.14

Having reviewed the justifications put forward by the then ED and

EMB for allowing Li Po Chun United World College of Hong

Kong (LPCUWC) to remain in the DSS in 1999 and 2002, and

taken into account the uniqueness of LPCUWC, the benefits it

brings to students in Hong Kong and the downside of changing the

funding mode of LPCUWC as set out in paragraphs 8.7 to 8.13, the

Working Group recommends the continuation of the status quo, i.e.

that LPCUWC be allowed to continue to remain in the DSS.

Annex 4

Major Recommendations put forward by the Audit Commission

I. Relating to Fee Remission/Scholarship Schemes

Para. 3.9

Audit has recommended that the Secretary for Education should:

(a) take action to ensure that DSS schools set aside the required

amounts of school fee income according to the levels of their

school fees for the fee remission/scholarship schemes;

(b) follow up with DSS schools to look into the causes of the low

utilization of their fee remission/scholarship schemes and

advise them to make improvement, where appropriate; and

excessive reserves for their fee remission/scholarship schemes.

Para. 3.17

Audit has recommended that the Secretary for Education should:

(a) monitor the DSS schools’ implementation and publicity of their

fee remission/scholarship schemes; and

(b) remind DSS schools to:

(i) establish a mechanism for monitoring the proper

implementation of their fee remission/scholarship

schemes;

(ii) provide full details (e.g. the eligibility criteria and the

maximum percentage of fee remission) of their fee

remission/scholarship schemes in their school

prospectuses;

(iii) upload details of their fee remission/scholarship schemes

to their websites; and

(iv) ensure that the eligibility criteria of their fee

remission/scholarship schemes are not less favourable than

the government financial assistance schemes to students.

II. Relating to Governance and Internal Control of DSS Schools

Para. 2.8

Audit has recommended that the Secretary for Education should urge

all DSS schools to:

(a) include representatives of key stakeholders in their school

governing bodies; and

(b) disclose to the public information of their governing bodies,

including the name, tenure of office and category of each

school manager.

Para. 2.15

Audit has recommended that the Secretary for Education should

remind DSS schools to:

(a) ensure that parent school managers of the IMC are elected

through a secret-ballot election conducted by the PTA of the

school, in which all parents can participate, and keep proper

records of the election;

(b) ensure that all school managers are registered; and

school manager.

Para. 2.23

Audit has recommended that the Secretary for Education should

remind DSS schools to:

(a) monitor the attendance of school managers at school governing

body meetings and take action, where necessary, to improve

the attendance rate;

(b) rectify the decisions made at their school governing body

meetings where a quorum was not present;

present at every school governing body meeting; and

(d) issue draft minutes of school governing body meetings in a

timely manner and to properly record the deliberations and

decisions made at these meetings.

Para. 2.28

Audit has recommended that the Secretary for Education should

remind DSS schools to ensure that:

(a) a proper system is put in place for managing potential conflict

of interest of school managers; and

(b) the procedures for managing conflict of interest of school

managers are complied with.

III. Relating to Financial Management of DSS Schools

Para. 5.8

Audit has recommended that the Secretary for Education should:

(a) in consultation with the FSTB, consider the need for setting a

reserve ceiling for the accumulated operating reserves of DSS

schools, and requiring the schools to return any surplus in

excess of the ceiling to the Government according to Financial

Circular No. 9/2004;

(b) take necessary action to ensure that DSS schools with

accumulated operating reserves exceeding an amount

equivalent to a full year’s operating expenses submit

development plans setting out how the reserves will be used for

school development; and

provided in the development plans submitted by the schools to

facilitate the EDB’s monitoring of the implementation of the

development plans.

Para. 5.13

Audit has recommended that the Secretary for Education should take

necessary measures to ensure that:

(a) DSS schools maintain sufficient operating reserves to meet at

least two months’ operating expenses; and

(b) the SSBs finance any possible deficit of the schools so that the

schools will meet the operating reserve requirement.

Para. 5.17

Audit has recommended that the Secretary for Education should:

(a) remind DSS schools of the requirements relating to

self-financing activities stipulated in Financial Circular No.

9/2004; and

(b) require them to keep separate accounts for their private classes

and to ensure that there is no cross-subsidization of the private

classes by the DSS classes in money or in kind.

Para. 5.22

Audit has recommended that the Secretary for Education should

consider requiring DSS schools to ensure that their non-local students

are not cross-subsidized by the government subsidy for local students.

For example, the EDB may require those schools which admit

non-local students to collect from the non-local students an amount

of school fees not less than the DSS unit subsidy plus the approved

school fees for local students.

Para. 5.28

Audit has recommended that the Secretary for Education should take

necessary measures to ensure that DSS schools:

(a) submit their annual audited accounts in a timely manner; and

(b) comply with the requirement to include a statement in their

auditor’s reports stating whether they have used the

government subsidies in accordance with the rules promulgated

for the DSS.

Para. 5.32

Audit has recommended that the Secretary for Education should

remind DSS schools to ensure that all interest income from

government funds is recorded in the government fund accounts.

Para. 5.36

Audit has recommended that the Secretary for Education should

remind DSS schools to ensure that only approved expenditure items

are charged to the government fund accounts.

Para. 5.44

Audit has recommended that the Secretary for Education should:

(a) require DSS schools to formulate guidelines on the use of

non-government funds; and

(b) consider requiring DSS schools to disclose to their stakeholders

the major expenditure items funded by non-government funds

with a view to improving their accountability and transparency.

Para. 5.48

Audit has recommended that the Secretary for Education should take

necessary measures to ensure that the EDB’s guidelines on

investment of surplus funds of schools are complied with by DSS

schools.

Para. 5.52

Audit has recommended that the Secretary for Education should

remind DSS schools to:

(a) correctly record the fixed assets under their control in a fixed

asset register; and

(b) conduct physical stocktake at least once a year and investigate

any discrepancies found, and report the results of stocktake to

the school governing bodies.

Para. 5.60

Audit has recommended that the Secretary for Education should

remind DSS schools to:

(a) prepare a financial statement for each fund raising activity and

display the statement for a reasonable period of time on the

schools’ notice boards for the information of teachers, parents

and students;

(b) retain the financial statements for fund raising activities for

audit purposes;

activities held for other organizations which are not approved

charitable institutions, or not specifically approved by the EDB;

and

(d) formulate guidelines on fund raising activities and require their

staff to comply with the guidelines.

IV. Relating to Non-compliance Problems in the Aspects of Financial

Management and Human Resources Management of DSS schools

Para. 5.13

Audit has recommended that the Secretary for Education should take

necessary measures to ensure that:

(a) DSS schools maintain sufficient operating reserves to meet at

least two months’ operating expenses; and

(b) the SSBs finance any possible deficit of the schools so that the

schools will meet the operating reserve requirement.

Para. 5.17

Audit has recommended that the Secretary for Education should:

(a) remind DSS schools of the requirements relating to

self-financing activities stipulated in Financial Circular No.

9/2004; and

(b) require them to keep separate accounts for their private classes

and to ensure that there is no cross-subsidization of the private

classes by the DSS classes in money or in kind.

Para. 5.28

Audit has recommended that the Secretary for Education should take

necessary measures to ensure that DSS schools:

(a) submit their annual audited accounts in a timely manner; and

(b) comply with the requirement to include a statement in their

auditor’s reports stating whether they have used the

government subsidies in accordance with the rules promulgated

for the DSS.

Para. 5.32

Audit has recommended that the Secretary for Education should

remind DSS schools to ensure that all interest income from

government funds is recorded in the government fund accounts

Para. 5.36

Audit has recommended that the Secretary for Education should

remind DSS schools to ensure that only approved expenditure items

are charged to the government fund accounts.

Para. 5.44

Audit has recommended that the Secretary for Education should:

(a) require DSS schools to formulate guidelines on the use of

non-government funds; and

(b) consider requiring DSS schools to disclose to their stakeholders

the major expenditure items funded by non-government funds

with a view to improving their accountability and transparency.

Para. 5.48

Audit has recommended that the Secretary for Education should take

necessary measures to ensure that the EDB’s guidelines on

investment of surplus funds of schools are complied with by DSS

schools.

Para. 5.52

Audit has recommended that the Secretary for Education should

remind DSS schools to:

(a) correctly record the fixed assets under their control in a fixed

asset register; and

(b) conduct physical stocktake at least once a year and investigate

any discrepancies found, and report the results of stocktake to

the school governing bodies.

Para. 5.60

Audit has recommended that the Secretary for Education should

remind DSS schools to:

(a) prepare a financial statement for each fund raising activity and

display the statement for a reasonable period of time on the

schools’ notice boards for the information of teachers, parents

and students;

(b) retain the financial statements for fund raising activities for

audit purposes;

activities held for other organizations which are not approved

charitable institutions, or not specifically approved by the EDB;

and

(d) formulate guidelines on fund raising activities and require their

staff to comply with the guidelines.

Para. 6.12

Audit has recommended that the Secretary for Education should

remind DSS schools to:

(a) formulate a proper staff recruitment policy and keep all the

recruitment records which are consistent with the best practices

promulgated by the EDB;

(b) carry out recruitment of staff in an open and fair manner;

appointed by the school governing bodies;

(d) report to their school governing bodies the results of staff

recruitment;

(e) ensure that approval from school governing bodies is obtained

before a teacher is appointed for a term of not less than six

months; and

(f) provide accurate information to the school governing bodies in

seeking their approval for appointing new teachers.

Para. 6.17

Audit has recommended that the Secretary for Education should

remind DSS schools to:

(a) put in place a proper mechanism for determining the

remuneration packages for their staff to ensure that the

packages are fair and justifiable;

(b) clearly set out the criteria (e.g. qualifications, experience,

performance and expertise) and approval authority for

determining the remuneration package of an appointee and any

subsequent salary adjustment; and

administration are properly endorsed, documented and

implemented.

Para. 6.21

Audit has recommended that the Secretary for Education should

remind DSS schools to:

(a) establish and implement an effective performance management

system for their staff; and

(b) review the operation of the performance management system

periodically by making reference to the guidelines issued by

the EDB.

Para. 6.25

Audit has recommended that the Secretary for Education should

remind DSS schools to:

(a) submit the staff performance appraisal results for the school

governing bodies’ consideration when seeking their decisions

on matters of staff contract renewal; and

(b) properly document the justifications for contract renewal

decisions to prevent allegations of favouritism or unfairness.

Annex 5

Major Recommendations put forward by

the Public Accounts Committee of the Legislative Council

I. Relating to Fee Remission/Scholarship Schemes

The PAC strongly urges the Secretary for Education to:

 apart from requiring DSS schools to improve their fee

remission/scholarship schemes, conduct a comprehensive

review to explore effective measures to ensure that students

from grassroots families will have a fair chance of studying in

DSS schools, such as providing sufficient financial subsidy to

needy students for meeting the necessary expenses of studying

in such schools other than school fees, and consult the Panel on

Education in the review;

 step up the EDB’s monitoring of DSS schools’ compliance with

its requirements on fee remission/scholarship schemes and to

enhance public awareness of the schemes, so that parents can

take them into account when considering whether to apply for

their children’s admission to DSS schools; and

 take measures to ensure that DSS schools will not discriminate

against Comprehensive Social Security Assistance (CSSA)

students in administering their fee remission/scholarship

schemes.

II. Relating to Governance and Internal Control of DSS Schools

The PAC strongly urges/urges the Secretary for Education to:

 put in place measures to enhance the internal control of DSS

schools and take effective intervention measures to ensure

timely rectification of identified cases of non-compliance;

 require the Working Group to accord top priority to reviewing

the EDB's control and monitoring mechanism instituted for DSS

schools to ensure that it is sound and effective, so that

non-compliance with the EDB's requirements and malpractices

will be detected in a timely manner, rigorous actions will be

taken to enforce compliance and rectification, and appropriate

punitive measures commensurate with the gravity of the

problems will be taken against the schools concerned;

 consider devising a self-assessment system for DSS schools to

declare of they have complied with various financial

management requirements of the EDB and request the schools to

document the justifications for not complying with the

requirements; and

 expeditiously implement the following audit recommendations:

The Secretary for Education should urge/remind DSS schools

to:

 include representatives of key stakeholders in their school

governing bodies;

 disclose to the public information of their governing bodies,

including the name, tenure of office and category of each

school manager;

 ensure that parent school managers of the IMC are elected

through a secret-ballot election conducted by the PTA of

the school, in which all parents can participate, and keep

proper records of the election;

 ensure that all school managers are registered;

 inform the EDB within a month after a person ceases to be

a school manager;

 monitor the attendance of school managers at school

governing body meetings and take action, where necessary,

to improve the attendance rate;

 rectify the decisions made at their school governing body

meetings where a quorum was not present;

 take necessary measures to ensure that, in future, a quorum

is present at every school governing body meeting;

 issue draft minutes of school governing body meetings in a

timely manner and to properly record the deliberations and

decisions made at these meetings;

 ensure that a proper system is put in place for managing

potential conflict of interest of school managers; and

 ensure that the procedures for managing conflict of interest

of school managers are complied with.

III. Relating to Financial Management of DSS Schools

The PAC urges the Secretary for Education to:

 closely monitor the progress made by the school concerned in

transferring the three properties to the SMC to ensure that the

transfer would be completed without delay;

 put in place measures to enhance the internal control of DSS

schools and take effective intervention measures to ensure

timely rectification of identified cases of non-compliance;

 consider devising a self-assessment system for DSS schools to

declare if they have complied with the various financial

management requirements of the EDB and request the schools to

document the justifications for not complying with the

requirements;

 provide more training for staff of DSS schools to familiarize

them with the EDB's various requirements in financial

management to help ensure compliance; and

 accord a high priority to exploring measures to ensure that the

planning and undertaking of large-scale capital works by DSS

schools will not cause undue impact on their level of school fee

and parents’ affordability.

IV. Training for School Personnel of the DSS Schools

The PAC urges the Secretary for Education to:

 provide more training for staff of DSS schools to familiarize

them with the EDB's various requirements in financial

management to help ensure compliance; and

 provide more training for staff of DSS schools to familiarize

them with the EDB’s various requirements in human resource

management to help strengthen the schools’ internal control

mechanism.

Annex 6

Comparison of Resources Deployment

between Aided Schools and Direct Subsidy Scheme Schools

Aided Schools DSS Schools

Salary of

teachers

 The salary of teachers

is governed by the

Code of Aid.

 Teachers’ salary

credited by the

government to

teachers’ bank

accounts via their

serving schools.

 The salary scale of

DSS schools needs not

follow that of aided

schools and DSS

schools can devise

school-based

remuneration

packages for their

teachers.

 Teachers’ salary is

included in the block

grant disbursed to

schools which can be

flexibly deployed by

them.

Staff

establishment

The staff establishment is

governed by the Code of

Aid.

DSS schools are given

autonomy in determining

the number and rank of

teaching and non-teaching

staff to be employed.

Nevertheless, the teacher

to class ratio and the ratio

of graduate to

non-graduate teachers in

DSS schools should not

be lower than the

prevailing standards in

aided schools.

3 Procurement

of goods and

services

Schools have to observe

the tendering and

purchasing procedures

including the tendering

and quotation limits

issued by the EDB.

While DSS schools

should follow as far as

possible EDB’s guidelines

on procurement

procedures for aided

schools, they can devise

Aided Schools DSS Schools

their own tendering and

purchasing procedures so

long as they are fair, open

and transparent.

4 School fee Small amount of Tong Fai

(from senior secondary

students) and other

collections are allowed on

a pre-approved basis.

With EDB’s prior

approval, schools can

charge their students

school fees for provision

of additional and support

services for students, such

as employing more

teachers to improve the

teacher to student ratio,

organizing more student

enrichment programmes,

designing more

diversified curricula to

develop the multiple

intelligence of students

and to cater for their

needs.

Annex 7

List of Approved Items of Expenditure for the

Direct Subsidy Scheme Government Subsidy

Advertising

Audit fee

Bank charges

Bank interest and overdraft interest

Approved repayment of loan and interest thereon

Curriculum development

Depreciation

Insurance for fire, theft, public liability and employee compensation

Postage and stamp duty

Newspaper and magazines

Telephones

Celebrations and entertainment

Wreaths, flower-baskets and similar tributes on behalf of the school

Professional fees for essential professional advice of a legal, architectural,

or similar nature

Travelling allowances, meals or light refreshments for occasional guest

speakers

Expenditure on supplementary teaching staff

Expenditure on staff training

Repairs and maintenance

Transport and travelling expenses wholly incurred on school business,

excluding travel between home and school

Teachers’ textbooks, maps, etc.

Consumable stores

Fuel, light and power

Cleaning materials

Prizes

Long service payment/severance pay (In accordance with the

Employment Ordinance)

Non-teaching staff salaries

Teaching staff salaries

Provident fund for teaching and non-teaching staff

Retirement or death benefits for staff not eligible for any other scheme,

provided that such benefits do not exceed those available to similar staff

eligible for another scheme, such as provident fund

Government rates and rent

Not for the depreciation, maintenance and running cost of above-standard facilities such as

swimming pool, school bus, etc.

Water charges

First-aid facilities

Sports

Extra-curricular activities

Printing and stationery

Library books for students

Miscellaneous items for educational purposes