THE LUMP SUM GRANT SUBVENTION SYSTEM: AN HK VIEW


 


Introduction


            The government of Hong Kong’s decision is two-fold in that it should ensure economic progress for public welfare while maintaining its culture from other nations.  These conflicting functions for the state enable it to initially guard its political boundaries but ultimately persisting to relax this aspect in order for economic boundaries to propagate its uncultivated land.  In analogy, this situation had affected how it manages its currency exchange and its valuation.  The HK government created monetary and fiscal policies as well as subvention systems like lump sum grants to control foreign investments and local activities for the greater good of its constituents.  Thus, Hong Kong’s implementation of the lump sum grant subvention system is a popular global story since each of them have individual interest to perform well economically reflected in Balance of Payments.  Presented in this paper is the classic lump sum grant subvention system of Hong Kong that has implications to its welfare system.  There is also a discussion about the effects of lump sum grant subvention system to the NGOs of Hong Kong wherein hypothetical cases are discussed and given bearing to analysis.  Lastly, a conclusion is installed to illustrate key findings in the paper.


 


 


 


 


DISCUSSION              


1) Illustrate the development of lump sum grant subvention system in Hong Kong.


            It is the case of the already economic-awaken Hong Kong.  By opening its doors to commerce, its lump sum grant subvention system aroused concerns from the world commodity currency of United States Dollar.  Thus, the formerly fixed lump sum grant subvention system had to realize appreciation which is out of the conventional state-owned decision-making and policy.  The Hong Kong’s Central Bank is unwilling to accept command from the US, partly some of inherent protection to Western imperialism, rather chose to act according to its own will.  Due to this, it is slowly but indirectly granting the wishes of the commodity currency through seemingly adapting some features of the lump sum grant subvention system. 


Perhaps, one of the unchallenged consequences of international trade, lump sum grant subvention system ensures that the economic performance of a nation will be reflected through its own currency.  As in the case of the reincarnated Hong Kong, foreign direct and portfolio investments serve as key contributors to its fast surging economy.  A lively-active market entails inflation which in turn increases the local demand for the currency of both consumers (to buy the products) and producers (to finance capital requirements).  Hence, as supply and demand law posits, its currency faces appreciation.


However, tagging the country as one of the best destinations of FDI, due to demand potential of its enormous consumers and labor-cost advantages, did little to tickle government authorities.  Emanated by 8.03 to 8.02 appreciation against the dollar, such minimal increase posted the highest gain of the currency since it began revaluing lump sum grants to accord international market forces.  Can be viewed as highly conservative lump sum grant subvention system, it also recently allowed its major NGOs to reflect revaluation trends.  But why is Hong Kong so conservative to embrace the “invisible hand” of lump sum grant subvention system?  Is it purely political regimen to imply world power, protection of local producers/ consumers or simply adaptation flaws for a millennia-old centrally-planned form of governance?


Probably, Hong Kong does not want risks to emerge abruptly parallel to its abrupt adaptation of the lump sum grant subvention system.  It can lead to inflation and adverse effects to balance of payments which the state cannot act on readily because national forces widened into complex and ever-changing international forces.  Rather the state wanted a smooth shift as it builds the necessary institutions to help its policies address the subvention system issues in the future.  Thus, the gradual approach of Hong Kong to freely implement the lump sum grant subvention system among its NGOs is preferred both for the benefit of its population and install supremacy of its government against other countries.  Local NGOs are given the time to obtain efficiency in its operations, as reflecting the measure of the lump sum grant subvention system could mean more expensive grants detrimental to its balance of payments.  In a similar way, NGOs are provided with cues on what to expect to their lump sum grants in the upcoming future, therefore, preventing public panic of any abrupt development.  Lastly, Hong Kong avoids its political ideals to be inflicted by other customs especially to affect the minds of its citizens.  This argument is concretized how the government created their own internet search engine to filter down political and “destructive” global information.     


(2) Describe the LSG and the assessment tools.


            Money is often referred as the lifeblood of the business since it is use to source out factors of production. Lump sum grant (LSG), on the other hand, is money that provides certain path, guidance and basis of spending, investing or saving for its grantees like NGOs.  Without a clear vision in mind, the LSG grantee would not achieve optimize returns since it cannot anticipate the risks and costs involve in its future transactions.  It is also difficult to establish certain goal in mind because such firm tends to operate without performance control and measurement. 


Since the conditions of organizations that wish to receive LSG vary, so is the LSG budgets prepared for them. The basic principle of forecasting for control is the same for all businesses. It must be emphasized that the LSG is an instrument of control. It can be used by management in the determination of the amount of the deviations form plans and its possible causes. If there is a negative controllable cause, management should act to remove it. That is the meaning of control via LSG. The most important thing here is the comparison of the actual with the planned results, since this comparison reflects the operating conditions of the business. 


 


(3) The two types of lump sum grant in Hong Kong


Two basic types of lump sum grant exist in Hong Kong. One is LSG through cash (TYPE A) that provides an estimate of the cash position of the NGO in a given period. This is the type of LSG that NGOs in Hong Kong normally prefer, because Cash LSG involves the consideration of the liabilities of the NGO and schedules the payment of these liabilities according to the schedule of the receipt of revenue by the NGO. Cash LSG starts with a list of the starting cash balance followed by expected revenue for the period covered by the budget added to the starting cash and then followed by the expenses such as liabilities deducted from the total cash balance. The positive remaining amount determines the cash earned by the business. ,  & , 2005, , 2000)


Another is operating LSG (TYPE B) that serves to forecast the revenues and expenditures for a year or less of the NGO involved. This involves the listing of income and expenses into two columns, with every source of income and areas of spending of the NGO itemized to compare the difference in total income and total expenditures. This method is helpful in mapping the revenue generation and spending of every area and stage of the NGO. Using this method enables the owners/managers to determine and evaluate the financial soundness of the NGO (, 2003; , 2000).


(4) Impact on social welfare service by the lump sum grant system


The current state of Hong Kong is highly dependent on its economy and therefore also constitutes the various businesses and companies that are within the country. Even with the consideration for these, there is also the need to identify with the culture of the people and include practical ideas that will also involve beliefs from various parts of the country while also including the ideas that will generally be helpful for the rest of the citizens. Such considerations take some time to work, and there is always the decision to focus on the possible ways that these can be achieved. The government, being a public figure, has the responsibility of specifying the definitions that should be included in the regulations.


            The welfare state is provided by the government to the public as per their rights for living and for survival. This responsibility stems from the idea that the country should righteously provide for their citizens, including their basic needs and some of their requirements. This does not necessarily mean, however, that everything should be given, rather some specific needs—such as health services and rights to living and for protection—should also be considered. These benefits being offered to the people are part of what the government may be able to offer according to the economy that they have and how they can seriously provide for the needs of the people. One of the greater reasons for this is to avoid the possibility of poverty overrunning the country and also immobilizing the state.


            Hong Kong has a very serious regard for the welfare states and for their citizens. The social policies include the needs and advantages that the citizens will be able to gather as per their rights. The responsibility on providing for them is based on the government, yet an exchange is also expected. Insurances for the people have been made, and thus has also been one of the priorities of many countries, including Hong Kong. However, despite the idea that the benefits are actually provided only by the government, there is also the idea of exchange between the citizens and the government itself, in order to give each other their own advantages and benefits.


Impact on the Social Worker


Of course, societal concern should be bigger than personal motives.  Here, corruption’s wicked meaning is transformed into an acceptable one when translated as efficient corruption (, 2003).  This is so because the excess of one sector of the community can be diverted to the less fortunate through political intermediaries.  Resources that should be turned into investments by a private firm are delayed as to obtain sector balance, of say, farmers.  Thus, a minimal LSG budget can be optimized in favor of community goals through political manipulation.  In effect, leadership and decision-making capabilities including values of social workers are challenged.  Such motivation would likely not happen if LSG budget is in appropriate level. 


Activities before the LSG release


The LSG serves as the major weapon of the public to instill responsibility and accountability among NGOs in Hong Kong (,  &  2001).  This somewhat drives public servants to avoid, if not hide, their deviations from such expectations as it could mean public speculation that if proven can result to ouster or election defeat.  On the other end, at times of perceived short LSG budget, they could resort to receive “grease money” from sectors/ businesses/ entities where the purpose of doing so is primarily for the public welfare.  However, the latter statement is prone to public speculation and legal counteraction even under the shadow of good deed.  Nonetheless, the given LSG budget confronted by politicians suggests how they would handle the risk and returns of filling the gap of the budget against their tenure goals.  The motivation comes from personal interests initially, but ultimately, results to embody political aspirations for their constituents.   


Since it is unlikely on the average that NGOs in Hong Kong will resort to robbery to obtain the right LSG budget, “grease” money especially from the business sector is a very lucrative source of financing.  The motivation to do so which substantially deviate from honesty virtues has been enforced by public expectation lingered when the candidate announced his formal cause.  To make NGOs efficient and moving cause, they should accept trade-offs between doing the right and wrong or returns and risks. 


Activities after the LSG release


Using LSG budget outsourcing at times of recession makes NGOs in Hong Kong trustworthy and dishonest as well as situational and relative heroes.  They become vigilant in the process in both environmental scanning for greener industries and internally generating strategies that will connect them to their budget needs.  Strategies include increasing registration and renewal fees, under-the-table settlements, front-up subsidy in favor of tax rate increase, among others.  It motivates his inner circle political organization to remain in continues communication and efficient transactions to avoid being caught by the media or public.  Also, his office would remain collaborative with all the sectors of community not only to scan public opinions and speculations but also to identify opportunities to increase the LSG budget. 


 


(5) The relationship between “the management ability of NGOs” and “the LSG system”


Applying managerial motives of the firm theory ( &  2001), managers cannot obtain their self-vested interest as well as those of the NGOs without a hefty LSG budget to implement acquisition and other diversification strategies.  Without minimization of agent risk to job loss or maximization of compensation, managerial motivation would collapse.  On the other hand, the LSG system requires the accurate management of physical, financial and organizational resources that may have complex consequences.  Expansion is a major corporate restructuring which entails strategic actions/ responses.  Being so, when implemented, reversing the strategy would be very costly and has long-term adverse effects.  Without the LSG budget to support managerial entrepreneurship and leadership including their market value, NGOs would feel unchallenged and less well-off than peers in other NGOs.  Turn-over and internal corruption would tend to be seen as worthwhile options.


 Departmental networks of NGOs also often argue about appropriation of annual LSG budgets for their specific causes.  When LSG budgets fail to meet expectations of such NGO units, it may result to reduced motivation and even firm rebellion particularly against the finance division.  For instance, a cut LSG budget due to conservation endeavors by the NGO may hurt the annual targets of a department to be able to get their productivity bonuses.  On the other hand, a department may develop envy from the same unit due to higher LSG budget of the latter due to intensified customer focus for year.  The perceived excessive LSG budget could have been used to buy new machineries or train new employees.  These intra- and inter-unit bottlenecks that stemmed in LSG budget allocation have also their impact to unit, relational and overall performance.


 


            Applying performance LSG budgeting to these instances can mitigate the destructive speculation of excessive/ meager LSG budget allocations.  Managers will be periodically audited in the post-expansion implementation to identify discrepancies from the original shareholder promises.  In the same manner, departments who feel aggrieved will be provided with performance targets within the capacity of their budget level.  Since this LSG budgeting system is result-oriented, it should be coupled with ethical committee oversight to regulate unacceptable level of immorality to obtain intended results.  Allocation of the LSG budget and selecting the appropriate model should be inferred in firm specific aspects in order to identify motivational points.


In this process, the level of LSG budget is undermined in favor of value-creating results it can offer to the NGO after implementation of the strategy.  The rules of the game are more important than the competencies of the NGO (firm) in this case.  Even though that the probability of losing is over 70%, the manager only expects his players to do their best to beat an unbeatable opponent.  By doing so, employee motivation will meet its target no matter how much departmental LSG budgets are.  Managers, on the other hand, will enhance their strategic decision-making motivation with increased accountability.  In effect, the NGO will have a culture of meeting calculated expectations based on budget limits.  Incentives can increase the boundaries of such approach that will reward performance that exceed a certain level or performance that surpass an operational difficulty and still obtain its goal.


(6) How the NGOs use the resources after the LSG system


            The financial situation of the NGOs who received LSG budgets is observed to have specific loopholes and sub-optimal performance particularly in financial accounts such as cost of operations, portfolio investments and debts However, with the introduction of LSG control techniques, these NGOs have been able to cut down on costs, establish weal-maximizing investments, avoid excessive debts due to efficiency, and improve division/ subsidiary output.  In this view, it can be said that these NGOs benefit so much from LSG budget control.  Further, this implies the vitality of financial approach to an NGO profitability and long-term growth. 


It is important to know that LSGs do not function well when treated as an isolated business procedure.  In order to be successful in this approach, it is essential that the management of the NGO associates the LSG to the other key processes such as sales, public relations and advertising, and accounting.


The process of utilizing the LSG is made up of activities that include the development, implementation, and evaluation of a plan for the wise spending of services and capital assets. An effective LSG budget process includes several essential features, which includes, but are not limited to the following:


·         The LSG budget process incorporates a long-term perspective;


·         The LSG budget process establishes links to broad organizational goals;


·         The LSG budget process focuses the budget decisions on results and outcomes;


·         The LSG budget process involves and promotes effective communication with stakeholders;


·         The LSG budget process is based on a “team approach” for program managers and administrative management; and


·         The LSG budget process provides incentives to management and employees.


 


Since there are so many NGOs in Hong Kong that wish to receive LSG, the managements of these NGOs are aware that it is a good idea to spreadsheet all known revenue producing areas as well as to understand all of the expense categories.  In this way, they are able to start getting a grasp of its peak periods as well as it’s off periods. As a result, these NGOs begin to get an understanding on which this work will be rendered.


Utilizing the LSG is not necessarily meant above the tables of the finance and accounting departments.  When the NGO is strict in implementing policy with the CEO as the approving officer, inter-organizational conflicts and reduced motivation would ensue.  This is why many of the NGOs have scheduled and even created management teams composed of different department and division heads.  Based on my own experience, management meetings are held without staff involvement.  The latter are only allowed observing management reports and operational outputs without the “right” environment to comment or suggest. 


 


            The absence of the “right” environment is the root cause of boredom, indifference and detachment with my company policies, standards and culture.  Unit managers are acting like Gods because what they say is what would employees are intended to do.  Even though at the end of every presentation the question “Is there any reactions?” would be invoked, such is only a dummy to imply everybody should affirm to make things simply and efficient.  Budget matters are worst.  Managers are only allowed to contribute even though employees are affected by its consequences.  As illustrated, the communication system of the organization directly affects the procedure of making the firm’s budget.  The problem of the model, however, is that the process becomes financially-centered without valuing (or respecting) its effects to employees especially for unit managers who have new or unattached subordinates. 


CONCLUSION

The results of the analysis carried out on the LSGs among Hong Kong NGOs indicated very significant effects, even amidst the threats of unrest. Therefore, we could conclude that the operations of these NGOs could still be expected to improve faster than average.


The review of the capabilities and resources of Hong Kong’s NGOs revealed very little inconsistencies regarding their strategies in managing LSG. This is coherent with their traditional inside-out approach. However, the need to reconcile both the inside-out and outside-in approaches becomes imperative now for the NGOs.


The analysis among the environment as well as the management capabilities of the NGOs in Hong Kong revealed certain gaps, most of which are biased towards the environment. However, these gaps paved the way towards determining a number of recommended strategic options to secure the NGO’s competitiveness.


Also, NGOs in Hong Kong have to find a balance between adherence to internal forces within the management and to the changing forces of the environment in order to implement such strategic options in handling LSG.


 


 


REFERENCES


 


 



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