(December 16, 1999)

According to provisions of the Audit Law, audit institutions have carried out budget implementation audit successively for the past four years. As indicated by the previous two years’ budget implementation audit, new progress has been made in respect to the depth of examination, the magnitude of sanction and the extent of standardization. Opinions and recommendations on strengthening budget control have become more clearly oriented. Audit institutions have played an important role in strengthening budget control by governments and the people’s congresses at various levels. Special mention must be made that during this year’s audit of central budget implementation, the National Audit Office disclosed and sanctioned serious illegal and irregular practices in the current revenues and expenditures of the public finance and marked conspicuous improvement of audit quality. This was well recognized and appreciated by the leaders of the State Council and the National People’s Congress.

At the end of the audit, relevant departments and units paid much attention to problems discovered in audit and took necessary corrective and remedial measures. Most of the problems have been or are being corrected. Before long, the State Council reported to the Standing Committee of NPC on the corrections made by related departments and local governments on problems disclosed in audit. The National Audit Office proposed two recommendations, i.e. to further detail the budget, improve budget transparency and tighten up budget implementation; to institute a system of seeking the liability of departments involved in irregularities. The State Council is very concerned with the proposal and urged departments like the Ministry of Finance to carry out a serious study and to put forward specific corresponding measures. At present, the two recommendations have been basically followed to the ground.

For the past several years, audit institutions at various levels, serving to the needs of deepening monetary reform and rectification, have carried out audits of revenues and expenditures of monetary institutions. Following the instructions of the State Council, the National Audit Office organized and carried out in succession full audits of the revenues and expenditures of 110 trust and investment corporations, 88 security dealing corporations as well as sectors of Industrial and Commercial Banks and Construction Banks of China. The National Audit Office discovered various problems including serious false statement of assets and liabilities, poor quality of assets, poor investment returns, irregular and fraudulent fund raising, misappropriation of clients’ deposits and irregular operations for illegal benefits as well as concealment of the off-book assets and profits etc. The National Audit Office through these audits has played an important role in ensuring the State Council and government departments to make well informed and correct decisions to strengthen the control of monetary institutions and guard against financial risks.

Audit of Enterprises

To explore the way for the truthfulness-focused financial audit of enterprises, audit institutions at various levels have actively carried out audits of the revenues and expenditures of state owned enterprises on a trial basis. These audits have not only brought a clear picture of the basic conditions of those enterprises and disclosed problems of fraudulent statement of revenues and expenditures, false statement of assets, liabilities, profits and losses, but also initially studied and tried on audit approaches and techniques like commitment system, statistical sampling, testing of the internal control systems and computer assisted audit techniques. Through this exploration, audit institutions have accumulated experiences for further strengthening and improving enterprise audit. This year, the National Audit Office organized and carried out the audit of the revenues and expenditures of 45 large and medium sized state owned enterprises or state share controlling enterprises for the year of 1998 and disclosed some problems like false statement of assets and liabilities, serious encroachment and losses of state assets, intentional turning bank liabilities into bad debts and secretly running “ little hidden coffers” etc. and found clues to 11 economic criminal cases.

Audit of Earmarked Funds

Catering to the needs of active financial policy and social stability, audit institutions have actively carried out audits of earmarked funds, expanded the audit field and deepened the audit probe. In 1998, the National Audit Office organized and carried out audits of the management and use of water resources funds, power infrastructure funds and the Three Gorges Project Construction funds as well as the housing program funds. According to instructions of Premier Zhu Rongji, the National Audit Office also organized and carried out a nation wide audit of the grain sector. Making clear of the exact amount of the newly increased liabilities arising from irregular accounting treatment and other irregular use of loans, this audit has provided a basis for resolving the problem of irregular accounting treatment to fish for more state subsidies in the grain sector and for deepening the reform of grain circulation system. Meanwhile it also disclosed 2200 serious irregularity cases involving misappropriation of grain purchase funds, defrauding state subsidies and embezzlement.

This year, the National Audit Office generally planned and carried out audits of some special funds including earmarked bond-cushioned funds, poverty alleviation funds, resettlement funds and funds for ensuring the basic living of laid off workers and subsidies for reemployment program. It also audited the revenues and expenditures of public security departments, procuratorial organs, courts and universities and colleges. Through these audits, the National Audit Office has brought to light problems of misappropriation, losses and wastes and embezzlement of public money. Meanwhile, the National Audit Office proposed opinions and recommendations on strengthening the management. In doing so, it has played an important role in ensuring appropriate and effective use of special funds.

Economic Responsibility Audit

In this May the General Offices of CPC and the State Council issued “ Provisional Regulations on Economic Responsibility Audit of Leading Officials during Their Terms of Office in the Party and Government at and below County Levels” and “ Provisional Regulations on Economic Responsibility Audit of Leaders during Their Terms of Office in State Owned Enterprises or State Share Controlling Enterprises”, which were earnestly implemented by audit institutions. In this August, the National Audit Office held the National Audit Symposium, where participants exchanged experiences on the implementation of the two regulations and the conduct of economic responsibility audit and studied specific measures to improve the implementation of the two regulations. According to statistics, audits of 17000 leading officials were completed from January to November, which have provided a basis for strengthening the management and supervision of government officials.

Earnestly Accomplishing Attestation Work for Related Cases

Following the instructions of CCCPC and the State Council, the National Audit Office has undertaken a great deal of attestation work for the investigation of economic criminal cases. The National Audit Office participated in investigating some key economic criminal cases including Wang Baosen and Chen Xitong case, illegal fund raising of Wuxi city, fraud and corruption case of Chu Shijian of Hongta Group Co. in Yunnan Province, fraudulent speculation on securities by Chengdu Honguang Industry Co. ltd. and fraudulent VAT invoicing by the State Tax Department of Jixian county in Tianjin. During the period of January to November this year, the National Audit Office instructed by CPC and the State Council undertook audit attestation for 28 cases. At present, the National Audit Office has completed attestation for 23 cases, among which the typical ones are the audit of Daqing Lianyi Oil and Chemical Industrial Co. Ltd. and the audit attestation of the extraordinarily serious case of smuggling in Zhanjiang city, Guangdong Province. In doing so, the National Audit Office has played an important role in helping competent departments to clear criminal facts and mete out legal liabilities. Audit institutions at various local levels have also undertaken a great deal of work and played important role in the investigation and sanction of key economic cases and in the fight against corruption.

On August 31, 1994, the Standing Committee of the 8^th National People’s Congress adopted the Audit Law of the People’s Republic of China, which was put into effect as of January 1, 1995. Acting in the spirit of the related provisions of the Constitution, the Audit Law has made specific provisions on the principle, status and the function of the audit supervision system of China. The promulgation and implementation of the Audit Law has formed the basic framework of audit legal system and conducted the practice of audit supervision into a legalized track. To better enforce and implement the Audit law, the National Audit Office drafted “The Provisional Procedures on Audit of Central Budget Implementation” and “Rules on the Implementation of Audit Law”, which were promulgated by the State Council for implementation respectively in July 1995 and October 1997.

Since 1996, the National Audit Office has accelerated its pace of standardization with a view to give a full play to audit supervision, improve audit quality and efficiency and better control audit risks. After concerted efforts of a year, the National Audit Office published 38 standards and standardized practices including “ the Basic Government Audit Standards of the People’s Republic of China”, which has specified the contents of public finance audit, monetary audit and enterprise audit etc. These standards symbolize that the audit work has embarked on a standardized track.

In addition to the above efforts, based on past experiences the National audit Office in consonance with the Disciplinary Commission of CPC and other three ministries and departments drafted “Provisional Regulations on Economic Responsibility Audit of Leading Officials during Their Terms of Office in the Party and Government at and under the County Level” and “Provisional Regulations on Leaders during Their Terms of Office in State Owned Enterprises or State Share Controlling Enterprises” . The two regulations were issued by the General Office of CCCPC and the General Office of the State Council in May 1999 and thus have ensured a smooth conduct of economic responsibility audit of leading officials of the party and government and leaders of state owned enterprises.

Audit of the Revenues and Expenditures of Monetary Institutions This audit must follow the objective of regulating monetary operations and best controlling and managing financial risks. To meet this objective, the National Audit Office will plan and organize an audit of the sector of agriculture banks of China to review the truthfulness of profits and losses and the status of assets, to see if there are any problems like irregular operations, false statement of assets and profits and losses as well as cases of keeping separate books out of normal accounting process.

In addition to the above audit operations, the National audit Office will also audit the revenues and expenditures of organizations, enterprises and financial institutions stationed or located in foreign countries and carry out quality review on public audit firms.