HOUSING AND DEVELOPMENT BOARD (

Mr Eric Cheong Yuen Chee asked the Minister for National Development what is the rationale of the Housing and Development Board for continuing its present "double account" system and not changing to the standard accounting system despite repeated advice from the Auditor-General.

Mr Lee Yock Suan (for the Minister for National Development): Mr Speaker, Sir, public attention has recently been focused on the HDB's accounting system relating particularly to the sale of flats.

Since 1964 when the HDB first began to sell flats, proceeds from sales have been treated as capital transaction and, therefore, deducted from the asset value in the Capital Balance Sheet. This so-called "Double Account" System, which provides one account for Capital and another for Revenue, was in fact adopted from British practice. In England, it has been used by public utility undertakings established under Special Acts of Parliament. This accounting treatment by the HDB has been in use for 17 years now and there have been no complaints until recently.

Before 1979, the HDB has increased the selling prices of its flats only once, i.e. in 1974. Since 1979, HDB has been compelled to increase the selling prices of HDB flats substantially because of the tremendous escalation of construction costs. The prices were increased by an average of 15% in 1979, 20% in 1980 and 38% this year. These price hikes have caused much anxiety and concern among flat buyers. The subject of concern is really the selling price, which is dictated by the construction cost, and not the HDB accounting system per se.

Any accounting system adopted by a public institution such as the HDB, should allow for proper control and accountability of public funds, especially when large sums of money are involved. In this regard, the present accounting system has achieved its purpose. There is no doubt about that and the Auditor-General has satisfied himself that this is indeed so.

The other aspect of an accounting system is the reporting function for internal management control and for public information. This is more a question of convention and style. Some accountants may prefer one system of accounting whilst other accountants may prefer another. The accounting system would also depend on the nature of the organization - whether it is a profit-oriented commercial firm or a statutory board providing a public service.

The HDB accounting system has worked well and been accepted for many years. However, in view of the criticisms by the Auditor-General that the HDB accounting system is out of date and considering the recommendations of the Public Accounts Committee, the HDB has decided to revise its accounting system, despite the many difficulties involved in such a major exercise.

The change in accounting treatment has already been implemented for HDB's subsidiary operations and other peripheral activities, including hawker centres and car park operations. All these years, such surpluses or deficits have been properly and separately accounted for and the operating results from the hawker centres and car parks have all along been shown in the Income and Expenditure Account. As for the subsidiary operations, such as the HDB quarry, brickworks and tile factories, the operating results for Financial Year 1980-81 have, for the first time, been reflected in the Income and Expenditure Account for the year.

Regarding the sale of flats activity, the problems involved are far more complex. Many technical problems concerning what is and what is not part of the construction cost will have to be ironed out. For example, in many instances, after an estate has been developed and completed, public amenities and other infrastructure are subsequently added to improve the estate. If such additions are considered part of the costs of the flats which have already been sold, how should the cost be treated; or if such improvements take place after some flats have been sold, and some others are waiting to be sold and still others rented, how should the cost be accounted?

HDB's accounting system has been used since its inception. Over the last 17 years some 350,000 units of flats have been built. It is impossible to go back so many years to try and revise the accounts to the new format. A cut-off date will, therefore, be necessary to arrive at a proper set of accounts which will serve as the starting point for the new accounting system.

The HDB needs time to study all the technical problems before implementing the revised system. In this complex and wide-ranging task, the HDB is further hampered by the lack of manpower. The Board has been losing many experienced accountants in recent months and it is having difficulty replacing them. In view of the many difficulties involved, it is expected that the earliest that the HDB can target to have the revised system installed is Financial Year 1983-84. 3.30 p.m.

Mr J.B. Jeyaretnam rose -

Mr Speaker: Mr Jeyaretnam, this is the end of Question Time. The answers to Questions not reached (See section, 'Oral Answers to Questions Not Reached' (Cols. 347 - 352)) should be sent by the Hon. Ministers concerned to the hon. Members who asked the Questions and to the Clerk.

We now come to Introduction of Government Bills.