UGC funding for the UGC-funded institutions is composed of recurrent grants and capital grants.　

Recurrent grants support institutions' academic work and related administrative activities; and capital grants are used to finance major works projects and minor campus improvement works.　

The recurrent funding for the 2009/10 to 2011/12 triennium was approved by the Finance Committee of the Legislative Council in January 2009. The total approved recurrent funding for the UGC-funded sector in the triennium amounts to $33,992 million. This recurrent funding covers block grants and earmarked grants.　

The bulk of the recurrent grants are disbursed to institutions normally on a triennial basis to tie in with the academic planning cycle, and in the form of a block grant, to provide institutions with maximum flexibility. Once allocations are approved, institutions have a high degree of freedom in deciding on how the resources available are put to best use. Determination of the grants to institutions is largely based on an established formula. The amount of block grants comprises three elements:

The UGC-funded institutions are autonomous statutory bodies governed by their respective Ordinances. They enjoy considerable institutional autonomy in such areas as curriculum design, selection and recruitment of staff and students, and internal allocation of finances. While respecting the institutional autonomy of our funded institutions in allocating and managing their internal finances, the UGC adopts an accountable and transparent approach in ensuring the public money entrusted to the institutions are applied meaningfully and of value for money.

To provide institutions with substantial financial freedom, the bulk of the subvention to institutions are chiefly in the form of the block grant, which provides for a "one-line" allocation of resources for a funding period (usually a triennium) without prescription attached as to how it should be spent. The major requirement is that such grant must be applied within the ambit of "UGC-fundable activities" while adhering to approved student number targets. The precise amount of the block grant has to be approved by the Finance Committee of the Legislative Council before the start of every triennial funding period, after which it is squarely upon the institutions to take charge of the responsibility to apply those funds appropriately.

Institutions are accountable for any unspent balances of the public funds

While being entitled to maintain a general reserve of up to 20% of the institution's total approved recurrent grants (excluding any earmarked grants) in a triennium for future and new development needs, any excess of that level has to be returned to the UGC. The use of the general reserve is subject to the same rules and regulations governing the use of recurrent grants. For grants earmarked for specific purposes, any amount unspent after the close of financial year or approved funding period must be returned.

Institutions provide regular reports on their finances to the UGC

We require institutions to submit for each financial year an annual return on the use of all UGC funds. We also require Heads of Institutions to provide a Certificate of Accountability to the UGC annually to confirm that the public funds allocated via the UGC had been spent in accordance with the rules and guidelines as agreed with the UGC.

Institutional finances are subject to professional accounting standards and external audit processes

Institutions are required to keep proper accounting records in accordance with the Hong Kong Financial Reporting Standards and the house guidelines on recommended accounting practice adopted by the UGC where appropriate. Institutions also arrange their own external annual audits on their financial statements and the annual return, in accordance with prevalent assurance engagement standards adopted by the audit profession. For the purpose of efficient use of public funds, institutions are also subject to examination by the Director of Audit.

From time to time, the UGC may express interest in the financial well-being of UGC-funded institutions and enquire on specific financial issues concerning the UGC sector.

The UGC supports capital works projects of institutions for UGC-approved activities by capital grants which are sought from the Government on an annual basis under the Capital Programme and the Alterations, Additions, Repairs and Improvements (AA&I) Programme. Details are at the chapter "Activities Review - Capital Works".

The capital grants are charged to the Capital Works Reserve Fund and are part of the Capital Works Programme (CWP) of the Government. Institutions' projects under capital subvention are required to follow the procedures for creating and managing a capital works project under the CWP. Institutions assume full responsibility and accountability for their projects under capital subvention. They should ensure that works expenditure stays strictly within the approved project estimate in accordance with the approved project scope i.e. the scope approved by the Legislative Council for capital works projects exceeding $21 million, and the scope approved by the UGC for AA&I projects up to $21 million.　

Institutions should ensure that an appropriate system of cost control and monitoring is in place for overseeing the spending of public money having regard to economy, efficiency and effectiveness in the delivery of their projects under capital subvention and use of public funds. In particular, institutions should ensure proper procurement procedures are in place for purchases under capital subvention with reference to Government's latest rules and regulations applicable to public capital works.　

Approved funds for the projects are released to the institutions on a monthly basis. Upon completion of a project, the institution should submit a statement of final accounts to the UGC and return any unspent balance or unapproved expenditure to the Government.