Secretary for Financial Services and the Treasury Christopher Hui said on Monday there was clearly insufficient awareness of due diligence checks on the part of officials when they procured bottled water for public offices this year.
That purchase ended with the operator of a firm supplying the water being charged with fraud in August.
Hui also cited an Audit Commission report as noting that human error was involved in the case that had seen more than a dozen officials and staff from the Treasury and the Government Logistics Department now being subject to disciplinary investigations.
Following weeks of review, Hui said regardless of the judicial proceedings, the due diligence checks conducted showed that officers had not adapted to the current business environment and their ability to prevent potential fraudulent acts were obviously below reasonable expectations.
He said a number of interim measures have been put in place – including expanding an audit team to strengthen inspections, as well as giving officials greater power in managing contracts and to terminate them promptly when needed.
Hui said officials needed to be more proactive with their checks.
"We've already issued guidelines to make sure that our colleagues on the procurement side will adhere to the due diligence work, including not just about paper exercise, but also checking of information online," he told a press briefing.
"Also at the same time, if there's a need, they could do on-site inspection to really look into the information being made available to them to see if they are genuine or not."
Hui said a digital database had been set up to enable better sharing of information across different departments, with officials being given more anti-fraud training and staff-engagement sessions in an attempt to improve work culture.
He said since human error was identified by the Audit Commission as a factor in the process, more than a dozen staff from the Treasury and the Government Logistics Department are subject to disciplinary investigation.
Permanent Secretary for Labour and Welfare Alice Lau will be in charge of the probe, with a view towards completing it by the end of the year.
Hui said Lau is the most suitable person for the job because she's the most senior serving permanent secretary, adding that different levels of officials will be subject to the probe.
"Regardless of whether they are retired or not, they are also subject to the investigation. And for those that involve criminality, these will be taken care of by our law enforcement agencies," Hui said.
"Rather, we're looking into potential disciplinary and also management issues – and also dealing with them head-on in light of the current regime."
Carlson Chan, who was the director of government logistics back in June when the contract was awarded, has been on pre-retirement leave since a month ago.