At a press conference sponsored by the Information Office of the State Council on December l6, 1999, Li Jinhua, governor of the National Audit Office (NAC), introduced to Chinese and foreign reporters China's audit work and audit legislation.


In 1999, the audit authorities, centering on the focal government work, independently carried out audit supervision in accordance with the law, achieving noticeable results. They audited 112,000 units, helping the Government increase revenues and save expenditures by 29.8 billion yuan, and finding clues to 1,458 criminal cases.


Since the National People's Congress (N PC) promulgated the Audit Law in August 1994, audit institutions nationwide have audited 984,000 units, handed over 71 billion yuan to the State treasury, retrieved 79.8 billion yuan of misappropriated funds, and transferred to judicial departments 3,053 cases. They have thus played an important role in maintaining economic and financial order, promoting the exercise of administration in accordance with the law and the building of an honest government, and guaranteeing the sound development of the national economy.


Audit Work in 1999
Under the leadership of the Party Central Committee and the State Council, audit institutions mainly carried out work in six fields.

-Earnestly carrying out audit of budget implementation. Main efforts were pooled to disclose and investigate violations of law and discipline in budget management. This helped urge various departments to regularize budget behavior and provide an important basis for intensifying budget management and supervision. Achievements in the work were well recognized and appreciated by the N PC Standing Committee and all circles in society.


For instance, in June 1999, Governor Li Jinhua made a report to the N PC Standing Committee on all the problems found in the 1998 audit. Attaching high importance to the report, the N PC Standing Committee required the NAC to make a further report to it six months later. To date, under the supervision of the State Council, all the problems have been basically corrected or addressed. Related departments and units have paid posthumously taxes and funds that they failed to pay. Up to now, 1.8 billion yuan has been turned into the State treasury.


Most of the misappropriated earmarked funds have been retrieved, and the immovable properties purchased with misappropriated funds have either been confiscated or subject to auction. For example, related staff of the former second communications department of the Ministry of Finance who used 70 million yuan of financial funds to establish a company returned all the funds to the original unit last July. Departments concerned have respectively carried out education among related personnel, circulated a notice of criticism, and taken Party or administrative disciplinary actions against those with serious circumstances. Cases involving criminal activities have been or are being investigated. For instance, the Ministry of Supervision, the NAC and the Coal Industry Administration have made a joint investigation of the problem of the misappropriation of pension insurance funds by the Social Security Bureau of the former Ministry of Coal Industry. The case, involving the former director and an accountant of the bureau who are suspected of embezzlement, has been turned over to the procuratorate for investigation. Further more, related departments, following the suggestion of the NAC, have worked out measures to intensify internal management and improve budget management.


-Intensifying monetary audit. To deepen the reform of the financial system and rectify financial order, in 1999 the NAC organized audit of the 1998 assets, liabilities, profits and losses of the head office of the Industrial and Commercial Bank of China and its more than 4,600 branches and sub-branches, and the head office of the Construction Bank of China and its more than 1,700 branches and sub-branches in 19 provinces and municipalities. Meanwhile, the NAC carried out extended audit of more than 120,000 loaners and their utilization of loans. The results show that after several years of rectification and reform of the financial system, the two banks, in general, have tightened up internal management, and done a great deal of work and achieved fairly good results in improving the quality of assets, mitigating financial risks and increasing economic returns. They have also enhanced their consciousness of law and discipline abiding, thus reducing violations of State economic and financial laws and regulations.


The audit also found that the two banks had some problems in implementing economic and financial laws and regulations in force and in internal management. Although many major problems occurred before 1996, they were only exposed in the two years of rectification or found out in the 1999 audit. The main problems found in the audit include the following. First, some branches and sub-branches of the two banks falsely increased their assets, liabilities and proprietors' interests by more than 20 billion yuan. Second, problems that violate State economic and financial legislation existed in financial revenues and expenditures, such as false statement of revenues and expenditures, tax evasion and running "little hidden coffers' , . Third, the losses entailed by some branches and sub-branches of the two banks as a result of irregular operation and the off -book assets formed through various ways topped 20 billion yuan. Fourth, the credit asset quality was low. Spot checks made in some branches and sub-branches of the two banks and extended audit of some loan recipient enterprises found that the amount of non-performing loans exceeded 10 percent of the total. Fifth, more than 170 major law-and discipline-violating cases were uncovered, involving 221 people.


Leaders of the two banks at various levels attached high importance to these problems. Through earnest reform and rectification, many problems were timely handled and corrected. The NAC and related departments are handling problems related to the violation of regulations and disciplines found out in the audit in accordance with the law, and have turned over law- and discipline-vio1ating cases to disciplinary, supervision or judicial departments.


-Actively carrying out audit of State-owned enterprises. The NAC organized and carried out the audit of the revenues and expenditures of 45 large and medium-sized State-owned and State holding enterprises for the year of 1998 and disclosed some problems, such as false statement of assets and liabilities, serious encroachment upon and losses of State assets, intentional turning bank liabilities into bad debts and secretly running "little hidden coffers". Clues to some serious economic crimes were found.


-Earnestly carrying out audit of earmarked funds. Catering to the needs of the Government's proactive financial policy and social stability, the NAC organized and carried out audit of the management and use of earmarked funds, including government loans, and water resources, poverty relief, resettlement and social security funds. It also audited the revenues and expenditures of public security departments, procuratorate organs, courts, universities and colleges. Through these efforts, the NAC has brought to light problems of misappropriation, losses and wastes, and embezzlement of public funds.


In 1999, the NAC organized 15 special offices and audit authorities in eight provinces, autonomous regions and municipalities to carry out audit of the management and utilization of the funds earmarked by the Central Government to the seven large river valley administrations under the Ministry of Water Resources and 30 provinces, autonomous regions and municipalities in 1998 and the first quarter of 1999. The results of the audit indicate that the Central Government's water conservancy construction funds have been fairly well appropriated and used since 1998, which helped expedite the harnessing of major rivers, ensure the smooth tiding over the flood season last summer, and significantly reduce the losses caused by floods. Nevertheless, there are still many problems in the management and utilization of water conservancy construction funds. The audit found out that 3.02 billion yuan had been diverted or misappropriated, accounting for 10 percent of the total funds audited.


-Gradually carrying out economic responsibility audit. In May 1999, the general offices of the CPC Central Committee and the State Council issued the Provisional Regulations on Economic Responsibility Audit of Leading Officials During Their Terms of Office in the Party and Government at and Below the County Level and the Provisional Regulations on Economic Responsibility Audit of Leaders During Their Terms of Office in State-Owned or State Holding Enterprises, which were earnestly implemented by audit institutions at various levels. In 1999, relevant authorities completed audits of more than 17,000 leading officials, laying a basis for strengthening the management and supervision of government officials.


-Earnestly accomplishing attestation work for related cases. Following the instructions of the CPC Central Committee and the State Council, the NAC has undertaken a great deal of attestation work for the investigation of major economic criminal cases, including the case involving the Daqing Lianyi Petrochemical Industrial Co. Ltd. and the extraordinarily serious case of smuggling in Zhanjiang City, Guangdong Province. The audits conducted by the NAC have played an important role in helping competent departments to clear criminal facts and mete out legal liabilities.



On August 31, 1994, the Standing Committee of the Eighth N PC 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 function of the audit supervision system of China. The promulgation and implementation of the Audit Law has formed the basic framework of the audit legal system and brought the practice of audit supervision onto a legalized track. To better enforce and implement the Audit Law, the NAC drafted the Provisional Procedures on Audit of Central Budget Implementation and the Rules on the Implementation of the Audit Law, which were promulgated by the State Council for implementation in July 1995 and October 1997 respectively.

Since 1996, the NAC has accelerated the pace of standardizing the audit work with a view to giving full play to the role of audit supervision, improving audit quality and efficiency, and better controlling audit risks. After a year's concerted efforts, the NAC published 38 standards and standardized practices, including the Basic Government Audit Standards of the PRC, which has specified the contents of public finance audit,. monetary audit and enterprise audit. These standards indicate that the audit work has embarked on a standardized track.


In addition to the above efforts, based on past experiences, the NAC in consonance with the CPC Disciplinary Commission and three other related departments drafted the Provisional Regulations on Economic Responsibility Audit of Leading Officials During Their Terms of Office in the Party and Government at and Below the County Level and the Provisional Regulations on Leaders During Their Terms of Office in State-Owned or State Holding Enterprises. The two regulations, issued by general offices of the CPC Central Committee and the State Council in May 1999, have ensured the smooth conduct of economic responsibility audit of leading officials of the Party and Government and leaders of State-owned enterprises.


Main Tasks for the Audit Work in 2000

Audit of the revenues and expenditures of the public finance. Audit in this aspect must follow the objective of regulating and standardizing financial allocation procedures, promoting financial administration by law, ensuring the appropriate use of earmarked funds and enhancing the efficiency of money utilization. Serving to the needs of the proactive financial policy and social stability, the priority of audit in this field should be targeted on earmarked bond-cushioned funds, budget implementation of key central departments, central funds for scientific and technological development, and funds for highway construction, key infrastructures and poverty relief. Through audit, the NAC intends to examine if there are any problems like false statement, irregular operations, losses and wastes, fraud and corruption. Based on the disclosure of these problems, it will propose from the policy perspective recommendations on the improvement of management, and urge various government departments to exercise administration in accordance with the law, use financial appropriations rationally and effectively, intensify the building of a clean and honest government, and better perform their functions.

Audit of the revenues and expenditures of enterprises. The audit of enterprises must follow the objective of ensuring truthful and reliable accounting information prepared by enterprises, safeguarding the proprietors' rights and interests, and ensuring preservation and appreciation of State assets. To meet this objective, the NAC will target on some key large and medium-sized enterprises that are under restructuring or suffering from losses, with an eye to preventing the recurrence of the erosion of State assets and intentional turning bank liabilities into bad debts. Meanwhile, the NAC will actively carry out economic responsibility audit of leaders during their terms of office in State-owned or State holding enterprises and help build up a lean and honest government and a team of high-quality managers.

Audit of the revenues and expenditures of financial institutions. Audit in this field must take the objective of regulating financial order and guarding against and mitigating financial risks. To achieve this, the NAC will plan and organize audit of the revenues and expenditures of the Agricultural Bank 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, profits and losses, and cases of keeping separate books out of normal accounting process. The effort aims to regularize the bank's management, promote its operation in accordance with the law, improve the quality of financial assets, and guard against financial risks.

In addition, the NAC will carry out audit of the revenues and expenditures of organizations, enterprises and financial institutions stationed or located abroad, and conduct quality review on public audit firms.