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Audit Work Report on the Central Budget Implementation and Other Government Revenues and Expenditures for the Year 2011
2012-06-27日   Soure : :

-- at the 27th Session of the Standing Committee of the 11th National People’s Congress

on June 27, 2012

by Mr. Liu Jiayi, Auditor General

Standing Committee of the National People’s Congress:

Entrusted by the State Council, I now present to the Standing Committee an audit work report on the central budge implementation and other government revenues and expenditures for the year 2011 for your deliberation and approval.

Pursuant to the provisions of the Audit Law of the People’s Republic of China, the National Audit Office of China (CNAO), in accordance with the requirement and arrangement of the central authorities, comprehensively performed its functions in real earnest in 2011. It actively promoted the implementation of relevant policies, laws and regulations for the achievement of scientific development. It stepped up efforts to expose and dispose the violations of laws and regulations as well as economic crimes, thus energetically safeguarding economic security, combating corruption and building a clean government. It stressed on putting forward recommendations from the perspectives of the institution, mechanism and system to deepen reform and promote democracy and the rule of law. The audit results show that, under the firm leadership of the Central Committee of the Communist Party of China (CPC) and the State Council, the overall situation of the central budget implementation and other government revenues and expenditures in 2011 was fine, achieving a good beginning of the “12th five-year plan” period.

-- Strengthening and improving macro-control to ensure stable and fairly rapid economic development. A proactive fiscal policy was pursued: as compared with the previous year, the central public government expenditures increased by 17%, of which excess revenues increased by 39%, the year-end government bond surplus increased by 7%. The transformation of economic growth mode was expedited: the central government expenditures on science & technology, on energy conservation & environmental protection as well as on transportation increased by 18%, 13% and 27% respectively. Coordination among regional development was enhanced: expenditures in Xinjiang, Tibet and other Tibetan-inhabited areas increased by 54%, substantially promoting the implementation of programs for mainstay functional areas.

-- Making efforts to ensure expenditures on major projects to speed up the development of the people’s livelihood and public undertakings. The central government expenditures on the people’s livelihood including education, public health, social security and culture increased by 30% as compared with the previous year. The per-capita public health service fund increased from 15 yuan to 25 yuan. The quota for urban and rural residents’ medical insurance and financial subsidies for new rural cooperative medical and healthcare services was lifted from 120 yuan to 200 yuan per-capita per year. Expenditures devoted to agriculture, rural areas and farmers increased by 22%. Public expenditures on rural primary and secondary schools increased 100 yuan per student per year. 12.28 million boarders from poor families in the central and western parts of China received subsidies.

-- Deepening the reform of finance and taxation, making budget and final accounts public and further improving public financial system. All governmental revenues were incorporated into budget management and local governmental debts were audited and streamlined across the board, thus improving structural tax-reduction policies. Transfer payment structure was further improved to strengthen the basic financial safeguard mechanism at the county level. Reform was carried out in the way by which the province exercised direct financial management over the county in 1,080 counties. Budgets and final accounts were made public. 92 central departments made their annual budgets and final accounts public. 98 central departments made public their “three public expenses” (expenses on free entertainment, business vehicles and overseas trips by using taxpayers’ money).

-- Intensifying rectification in real earnest and promoting continuous standardization of financial management. Various departments and units paid great attention to and corrected the problems found in the previous year’s audits according to law. The funds and capital embezzled or detained, totaling 14.394 billion yuan, have all been retrieved or allocated, thus 6.066 billion yuan of loss has been retrieved or avoided. Party or administrative disciplinary measures were taken against 699 persons. 81 persons were arrested, prosecuted or imprisoned according to law. Upon the recommendation of the audit, 1,581 items in systems or regulations have been improved. Regarding the specific rectification, the State Council has submitted a special report to the Standing Committee of the NPC and the CNAO has announced it to the public as well.

I. Audit on the Central Financial Management

The audit shows that in 2011 the Ministry of Finance and the National Development and Reform Commission (NDRC) conscientiously implemented the proactive fiscal policy, improved the public financial system, strengthened budget and investment management and standardized budget implementation and trial public notice of major investment projects. The role of fiscal macro-control has been increasing, budget restraint and the level of investment management gradually enhanced. However, some problems still existed which need further standardization.

A. Integrity of central budge management

1. Some revenues and expenditures were not incorporated into budget management. China Clean Development Mechanism Fund Management Center had collected the revenue of 10.125 billion yuan since 2006 from the deals on greenhouse gas emission reduction; The Ministry of Commerce, Ministry of Health and Ministry of Agriculture since 2008 had accepted overseas assistance/grants totaling 6.209 billion yuan, and spent 1.092 billion yuan; the incomes from the interests of foreign governmental loans managed by the Import & Export Bank as entrusted by the Ministry of Finance totaling 3.7283 million Euros and expenditures totaling 1.7382 million Euros; the 170 million Hong Kong dollars of dividends from the investment shares which should be handed over by the China Patent Agent (Hong Kong) Co. Ltd., a subsidiary of the China Council for the Promotion of International Trade (CCPIT) with the controlling shares.

2. The Ministry of Finance, in its report to the NPC on the central budget implementation for the year 2011, understated the arrangement of 1.922 billion yuan of excess revenues.

3. There was considerable disparity between the reality and the surplus capital in the final account settlement and transfer in the overall budget used by departments in 2011 as commented in the replies made by superior authorities, mainly: The central public treasury had a surplus of 62.892 billion yuan in the concentrated payment of the previous year, while only 30.021 billion yuan were incorporated into departmental budgets (accounting for 48%); 12 governmental funds of 12 departments had 5.272 bullion yuan of surplus from the previous year, but non of them was incorporated into the departmental budget.

4. Departmental budgets and final account statements did not give a full picture of governmental procurement. The budget statements did not list the requirement for governmental procurement as arranged by governmental funds. The supplementary budgets did not require independent list of governmental procurement budgets. The final statements did not require the list of governmental procurement final settlement.

      

B. Specification and implementation of central public financial budget

1. The budget prepared at the beginning of the year did not specify departments and regions in details. In the budget of the central-level expenditures, the 98.265 billion yuan of expenditures prepared for lower levels and the 102.789 billion yuan of fact-based settlement of policy-oriented subsidies did not specify departments and projects, accounting for 12%. In the central-level capital construction expenditures under the centralized management of the NDRC, the specification ratio in the budget prepared at the beginning of the year was only 47%, less than the 75% as required. In the central departmental budgets which were replied and commented, 85 projects prepared by 30 departments involving 87.45 billion yuan (accounting for 45%) of budget expenditures did not have specifications, but had a second distribution in the course of execution. In the transfer payment budget, 1,630.969 billion yuan (accounting for 50%) did not specify provinces, regions or municipalities. 895.141 billion yuan (accounting for 28%) failed to be allocated within 90 days after the approval by the NPC.

2. A few investment plans were irrational. NDRC, in its investment plans on industrial rejuvenation and technological transformation, arranged 29.22 million yuan of investments in 6 projects which were not within the category of receiving assistance or did not strictly carry out relevant industrial policies, while 11 core areas of strategic new industries including clean production technology which should be given support did not get investment.

3. Investment under arranged financial subsidies to some projects did not meet the required ratio, scattered in distribution and limited in amount. In the investment on the trial construction of basic-level employment and social security service facilities arranged by the NDRC in 25 provinces, regions and municipalities in 2011, 21 of them did not get the required ratios for financial subsidies in investment. In the 1,903 special projects on medium and small enterprises’ technological transformation, the financial subsidies of investment in 752 projects were less than half of the total investment required, the least being only 1%. 919 million yuan planned investment in the industrial rejuvenation and technological transformation of electronics information industry was divided to 279 projects. Among the ratios of financial subsidies of investment, the highest was 50%, the lowest only 0.7%. 106 of these projects received subsidies at a lower ratio than required. This affected the effect of policy implementation.

4. Adjustments were made in the invested projects in the course of execution. In 2011, the Ministry of Finance adjusted 7 billion yuan in “subsidies to implement the educational program”, an investment in the transfer payment budget for compulsory education, to the expenditure for higher education. It adjusted the use of 1.728 billion yuan of budget prepared by the central treasury.

5. The plan for allocating investments was not up to the norms. In 2011, the NDRC failed to allocate 46.837 billion yuan of planned investment in strict accordance with the prescribed procedure. 13 special investment items failed to have special development programs, pre-formulated work plans or approval for the application for capital. 62 projects failed to get approval for their reports on feasibility studies, preliminary designs or application for land use. 3 projects either submitted application with falsified materials or did not pass the examination by experts.

6. The notices on investment plans and budgets were transmitted behind schedule. As required, notice on investment plans and application for supplementary budgets should be completed before September 30. The latest date for some special items should not be later than December 20. However, in the 2011 central budget investment plans, 14.954 billion yuan (accounting for 4%) was notified after September 30. In the supplementary departmental budgets, 59.264 billion yuan (accounting for 36%) was handled after September 30, of which 14.645 billion yuan was handled after December 20. What’s more, 21 departments had their final accounts for the year 2010 commented and replied after the prescribed date.

7. Some budgets had low rate of execution. Owing to the considerable disparity between actual situation and anticipations at the beginning of the year, by the end of 2011, 22% of the budgets and fact-based final accounts on policy-based subsidy prepared and at the central level were not executed, resulting in 44.718 billion yuan of surplus in settlement and capital transfer. 6 projects under the arrangement of central budgetary investment made slow progress. Over 70 million yuan of capital remained idle or was delayed in use. After the audit pointed out the low rate of execution of the central budget for insuring and subsidizing breeding industry last year, the Ministry of Finance reduced the budget for this item from 4.295 billion yuan to 2.65 billion yuan in 2011. However, the execution rate was still 24.7%, lower by 0.3% as compared with the previous year. The execution rate of “insurance subsidies for raising fat pigs” was even zero.

C. Management of financial transfer payment

1. General transfer payment should be intensified. There was a shortage of 393.567 billion yuan in the central balanced transfer payment verse the gap of standard incomes and expenditures of local treasury in 2011. This was not conducive to narrowing the financial disparity among regions. In the central general transfer payment in 2011, 12.341 billion yuan was assigned to specific projects and use.

2. Management system for special transfer payment was imperfect. Among 287 items of special transfer payment in 2011, 33 had not formulated management measures; among 254 items which had already established management measures, 180 had not established performance appraisal systems; and among 74 items which had already established performance appraisal systems, 19 did not take the performance of use of capital as the basis for distribution.

3. Part of the special transfer payment did not achieve the anticipated objectives. Among 144 spot-checked enterprises which had won “Awards for Closing Down Backward Production Facilities”, 45 obtained 241 million yuan through falsified applications and 13 did not close down their backward production facilities in accordance with regulations. Among 35 spot-checked projects which had already been completed with subsidies from “Golden Sun Demonstration Engineering”, 10 remained idle after completion and 16 had the volume of actual annual electricity generated lower than the designed standard.

D. Budget management of central governmental funds

1. Commissioned budgetary compilation covered an excess scope with low rate of implementation. In 2011, the Ministry of Finance prepared the central level funds budget of 39.627 billion yuan, accounting for 16% the budget at the same level. However, the rate of implementation was lower than 50% in the year. 27% of budget subsidies to local funds was not implemented either.

2. The number of times and levels changed in the course of execution. In 2011, the Ministry of Finance turned 1.736 billion yuan of the central level funds budget to local transfer payment. It turned 896 million yuan of funds budget originally in the list of local transfer payment to the central level expenditures.

3. Funds collection was not in place. Railway construction funds did not incorporate railways constructed and operated in the form of joint ventures into the scope of funds collection. The South-to-North Water Diversion Project had 5.824 billion yuan of funds in back dues.

E. Budget management of central State-owned capital operation

1. The budget scope of central State-owned capital operation was incomplete. By the end of 2011, 4,100 enterprises affiliated to central departments had not been incorporated into the budget of State-owned capital operation; 42 central financial enterprises, although handing over profits to their respective investors including the Ministry of Finance, the Central Investment Corporation and the People’s Bank, had not been subject to the management of central State-owned capital operation.

2. The ratio of collection from the yields of the current State-owned capital operation remains relatively low. Although the ratio of collection from the yields of the central enterprises’ State-owned capital operation was lifted in 2011, a few individual enterprises had a lower ratio of handing over their benefits than the ratio of their shared dividends from their listed stocks.

3. State-owned capital operation budget and public financial budget functions were not clearly identified. There were crisscross and overlapping in the objects and destinations of subsidies. Regarding special expenditures in some aspects, the capital operation budget prepared by the Ministry of Finance, the State-owned capital operation budget distributed by the State-owned Assets Supervision and Administration Commission and the public financial budget allocated funds respectively.

4. In 2011, 60.3 billion yuan in the State-owned capital operation budget was not specified to projects at the beginning of the year. The Ministry of Finance concentrated the appropriation of capital mainly in November and December. 32.742 billion yuan (accounting for 42% of the total of the same year) was appropriated in December.

F. Management of State treasury

1. Part of the special accounts of the funds from overseas assistance/gratis was not incorporated into the unified management by the department in charge of State treasury. By the end of 2011, 9 special accounts were still managed by the International Department of the Ministry of Finance. The revenues and expenditures of the year were 266 million yuan and 136 million yuan respectively.

2. The handling of concentrated payment from the State treasury was relatively imperfect. There was no clear distinction between direct payment and authorized payment. In addition, the correspondent banks authorized to handle the payment did not set ceilings on the payment procedures, which was not conducive to controlling the charges. For instance, in 2011 the Ministry of Finance adjusted part of the direct payment of the Ministry of Railways to authorized payment, which led to overcharge of 11.68 million yuan in commission.

G. Examination, approval and management of finance and taxation

There was no stringent examination, approval and supervision over government procurement. Owing to the fact that the criteria for government procurement were formulated by the Ministry of Finance, the confirmation of qualification, examination & approval, issuance of certificate, appraisal and penalty of procurement agents were likewise handled by the Ministry of Finance, and there was no effective supervision, among the 633 procurement agents granted grade-A qualification by the Ministry of Finance, 129 had their certificates for paying social insurances not in conformity with their actual payment. There was no report on the appraisal results of 6 concentrated procurement agents to the State Council, nor there was penalty on units or individuals suspected of violating regulations. In addition, there were 1,319 cases in which the procurement methods or products imported from abroad were changed in the form of informal notes examined and approved by the State Treasury Department of the Ministry of Finance.

H. Preparation of the draft of central final accounts

1. By the end of 2011, 13.785 billion yuan of financial borrowing had neither been cleared up nor incorporated into the draft statement of the final accounts.

2. The procedures and the items in the statement prepared were not entirely in conformity with the requirements of the system. Regarding the procedures, the Ministry of Finance prepared the draft of central final accounts first and, after it was approved by the Standing Committee of the NPC, adjusted the accounts according to reality. This did not accord with the procedures for preparing the final accounts. Regarding the items, 5 items including “transfer payment by the basic-level public security organs, procuratorates, courts and justice departments” listed in the category of general transfer payment did not belong to the items of prescribed government expenditures.

With regard to the above-mentioned problems, the Ministry of Finance, NDRC and relevant departments are making studies and rectification one by one. Regarding problems of understating the arrangement of excess revenues, the Ministry of Finance has made adjustments in preparing the draft final accounts. Regarding cases in which the management of part of the special accounts of the funds from overseas assistance/gratis was not up to the norms, the Ministry of Finance has put the accounts under the management by specific departments according to regulations.

II. Audit on Budget Implementation and Draft Final Accounts of Central Departments

The audit this time covered 50 central departments, extended to 270 subsidiary units, involving 146.024 billion yuan of budget expenditures, accounting for 30% of their total budget expenditures. The audit shows that these departments and units, earnestly meeting the requirements of the State Council, worked hard to strengthen budget management reform and system building, steadily pushing forward the work on circulating, publicizing and supervising budgets and final accounts. Generally speaking, they have been gradually improving their budget execution and financial management. Violations of laws and regulations have been continuously reduced. The amounts in misappropriating, embezzling, over-applying for budget funds and other law-violations were down by 13% and 61% respectively as compared with the previous year. The main problems found in the audit are as follows:

A. Budget implementation was not entirely in place. Of the 146.024 billion yuan of departmental expenditures audited this time, 21.287 billion yuan (accounting for 15%) was not executed in the same year. 4 departments including the Natural Science Foundation at their own level and 10 departmental-level subsidiary units including the Modern History Institute of the Academy of Social Sciences, in their projects involving a total of 3.569 billion yuan of budget execution, artificially lifted the implementation rate by 91.3% through falsifying expenditures and substituting expenditures by appropriations, thus precipitating 3.563 billion yuan of budget capital into their subordinate units or units in charge of projects.

B. Budget and financial management was not sufficiently stringent. The Ministry of Land and Resources and another department at their own level, units affiliated to the Environmental Planning Academy of the Ministry of Environmental Protection and 4 other departments over-applied for 21.9191 million yuan from the treasury. The Ministry of Commerce and 2 other departments at their own level, and units affiliated to 42 departments including China Software Test Center of the Ministry of Industry and Information obtained 157 million yuan of capital through illegal transfer, of which 28.841 million yuan was used for subsidies. In addition, it was also discovered that 770 million yuan of non-tax incomes were not handed over to the treasury in accordance with the regulation of “separating management of revenues and expenditures”. Irregularities in government procurement, asset management and accounts handling involved 4.394 billion yuan.

C. Some budget management systems and regulations were not clear and perfect. There are several striking examples. Firstly, the management system for fixed number of staff and fixed quota for basic expenditures is yet to be improved. The un-unified standard for fixed quota has, to some extent, resulted in the unequal distribution of ease and hardship among different departments. Secondly, there is no clear distinction between basic expenses and project expenditures. Some basic expenses were listed as project expenditures and there was a tendency of turning basic expenses to project expenditures. Thirdly, the concept of “three public expenses” (using taxpayers’ money to enjoy free entertainment, business vehicles and overseas trips) was not clear. The version itself and its criterion are not up to the norms. This is not conducive to giving play to the role of restraint and control and it can be easily misinterpreted by the general public. As the audit found out, the General Administration of Customs and 11 departments at their own level as well as units affiliated to 54 departments including the Geological Institute of China Earthquake Administration directly spent 393 million yuan as basic expenses under the item of project expenditures. 20 departments including the CAAC at their own level and units affiliated to 62 departments including the Land Planning Academy of the Ministry of Land and Resources used 775 million yuan of budget funds through adjustment between the items of budgets and expenditures. A few individual departments also had the practice of excessive “three public expenses”.

From the perspective of audit on departmental draft final-accounts, the prepared statements of various departments in 2011 were fairly up to the norms. The problems discovered were mainly related with the handling of accounts or errors in filling in the forms of statements, making parts of the contents in the final-account drafts somewhat inaccurate. This involved 36 departments and 1.419 billion yuan in amount, accounting for 0.09% of the total capital. Regarding the problems of 130 million yuan of the amount, relevant departments have already adjusted their accounts and statements in the course of audit. Regarding other problems, Auditor General has signed up his opinions requiring their correction.

Regarding problems pointed out in the audit, relevant departments and units have taken 106 measures for correction. Through recovering funds, adjusting accounts and final-account statements, 958 million yuan has been rectified.

III. Audit on Fiscal Capital at the County Level

For the sake of getting to know the situation of safeguards for financial resources, audit investigations were organized on the overall situation of the financial resources in 18 provinces, regions and municipalities. As the audit shows, the central treasury arranged various kinds of awards and subsidies totaling 156.968 billion yuan to counties and townships in 2011, more than three times the amount in 2005. 18 provincial-level financial input in safeguarding county-level basic financial resources reached 43.711 billion yuan. 54 counties with focused investigation (one third of investigation for each category of the counties with good, medium and poor financial resources) achieved 111.684 billion yuan in financial revenues, up by 17% as compared with the previous year. County-level financial safeguards are steadily improving. Main problems found in the audit are as follows:

A. Fiscal revenues at the county level, with a fairly high percentage of non-tax incomes, have a relatively low rate of stability and sustainability. At present, sources of tax collected solely by county governments are rather scattered. Fiscal revenues at the county level are mainly non-tax incomes. In 2011, of the fiscal revenues of 54 focus-investigated counties, 67.511 billion yuan (accounting for 60%) was non-tax incomes. Most of them were used for special items beyond the overall planning of the treasury.

B. Some counties reduced or cancelled financial incomes in disguised ways in attracting investments. Some falsified fiscal revenues. 53 of the 54 counties set forth preferential policy documents contravening State policies from 2008 to 2011. They returned to the enterprises 7.043 billion yuan of incomes from taxes and land transfer turned in by relevant enterprises. Meanwhile, some counties, without real sources of income, paid taxes in such ways as listing revenues and expenditures from idle land transfers or from financial borrowing, resulting in 3.313 billion yuan of falsified increase of fiscal revenues.

C. Fiscal expenditures at the county level face relatively heavy pressures. Some local people’s livelihood had no sufficient financial provision. According to the State requirements for increasing legal expenditures for agriculture, education, science and technology and local governments’ required standard for increased expenditures, of the public fiscal expenditures of 54 counties in 2010, 92.203 billion yuan (accounting for 77%, amounting to 81% in 45 counties in the central and western parts) belonged to policy-based expenditures of required standard. Financial resources left over to the disposal of county-level governments accounted for a relatively small percentage. With regard to the regulation on provision of 10% of the revenues from land transfer to be used in the development of subsidized housing, education, farmland and water conservancy, 13 counties had their provisions in full. The other counties had 1.057 billion yuan less (accounting for 35%) of the provisions.

D. Financial management was not up to the norms, featuring the lack of system restraint over excess revenues. By the end of 2011, none the 54 counties formulated system restraint over the excess revenues at their level. 31 of the 54 counties arranged 2.461 billion yuan of excess revenue entirely as expenditures in 2011, and most of the money was in reality not used in the same year. 6 counties did not start departmental budget reforms. 7 counties did not implement the practice of concentrated payment from the State treasury. 54 counties understated 8.329 billion yuan in revenues, 4.450 billion yuan in expenditures and falsified 6.656 billion yuan of expenditures in their 2011 financial statements.

With regard to the above-mentioned problems, relevant departments and localities are making studies on improving county-level financial management systems in line with the financial management system reforms below the provincial level. Relevant localities are rectifying the irregularities existing in financial management.

IV. Audit on Key Projects of People’s Livelihood and Other Special Projects

A. Audit on subsidized housing. The 18 provinces, regions and municipalities audited in 2011 arranged 281.162 billion yuan for the construction of subsidized housing, subsidized an accumulation of 12.2763 million households with housing difficulties because of their medium or low incomes, up by 233% and 112% respectively as compared with the previous year. Positive effects were achieved in relevant system building. However, there still existed such problems as the raising of construction funds being not in place and the examination and withdrawal mechanisms being imperfect. Among the 66 focus-audited cities and counties, 36 under-provided or under-arranged 5.314 billion yuan for the construction of subsidized housing (accounting for 14% the required amount), 11 failed to have 612 million yuan of supporting funds in place, and 2.955 billion yuan of special funds was either withheld or misappropriated. Among the spot-checked recipient households, more than 5,400 were incorporated into the scope of subsidization without examination of their qualifications. 21,000 households were either not qualified or repeatedly received subsidies. After the audit pointed out the problems, relevant localities retrieved or returned 2.820 billion yuan according to regulations and annulated the qualification of more than 3,800 households.

B. Audit investigation on the development of rural medical and public health service system. As the audit on 45 counties shows, since 2009, these counties had invested a total of 7.542 billion yuan in the development of the rural medical and public health service system and increased 410 new medical and public health institutions, basically achieving the goal of total networking coverage of rural medical and public health service. As the audit found out, the cultivation of the contingent of public health workers was relatively behind schedule. Some hospitals even had the problem of jacking up medicine prices beyond the prescribed scale. By the end of June 2011, in 45 counties there was in average only one person having practicing (assistant) doctor qualification in 4.5 village clinics, far away from the requirement that there should be at least one qualified person in one village clinic. Among the 62 spot-checked hospitals at the county level, 23 surcharged 67.32 million yuan (accounting for 23% of the proper amount) of medical expenses by jacking up medicine prices beyond the prescribed scale. The highest price was 12 times of the normal price. In addition, it was discovered that there were problems of illegal obtaining, misappropriating or withholding 164 million yuan in the construction of medical projects. Regarding the problems pointed out in the audit, relevant localities timely appropriated or returned the capital, streamlined the line-up and price-mix of medicines and adopted measures to strengthen the cultivation of basic-level medical contingent.

C. Audit on the capital for the production and development of modern agricultural. From 2008 to 2011, the 18 audited provinces, regions and municipalities received an accumulation of 17.989 billion yuan of special funds from the central treasury. This helped increase 48.9545 million mu of grain farmland, assisted 56 industries specialized in local superiorities and increased farm production and harvest. In practice, however, some localities failed to fully meet the requirements for capital integration, performance review and accounting systems. 14 provinces, under the circumstances that it was difficult to meet the requirements for overall integration of capital, falsified 18.841 billion yuan (accounting for 60%) in their statements of capital integration. Among the 54 focus-checked counties, 24 failed to implement the statement system or had their statements not up to the norms. 20 other counties illegally obtained and misappropriated 37.7091 million yuan of capital in 45 projects. In the course of audit, relevant localities corrected the problems of 23.3262 million yuan of illegal capital. They are now starting to improve relevant policies and systems with a view to further standardizing the management of projects and capital.

D. Audit investigation on major projects of State science and technology. By the end of 2011, the central treasury had invested an accumulation of 34.761 billion yuan in 8 major special items of State science and technology. 3,294 topics had been established to tackle a number of core technical difficulties with fairly good results as of this stage. However, by the end of 2011, 93% of the 8 major items failed to complete the required topic examination. 134 topics of 2 special items, without examination by the “11th Five Year Plan” topics, were approved or recommended as rolling-support topics of the “12th Five Year Plan”. This was not in conformity with the requirement that rolling-support topics should be determined on the basis of optimal selection from the topics already examined. Among the results of 2,401 items of 84 spot-checked topics, 582 items used the results of other topics of scientific research. Regarding the problems point out in the audit, relevant departments are making studies to improve the management of scientific and technological projects and funds management in an effort to urge rectification by relevant units.

V. Audit on Major Investment Projects

Audit was organized mainly on the Beijing-Shanghai High Speed Railway, the Second Pipeline for Transmitting Natural gas from the West to the East, Development Projects Supported by the Central Government in Xinjiang and Safety Engineering of Primary and Secondary School Housings. Generally speaking, these projects were carried out basically in accordance with the plans, and the use of capital and management of project quality were further improved. The already completed projects have displayed their initial economic and social benefits. However, there still existed some problems in the system of bidding and tendering, control over investment, management of funds and engineering.

A. There were relatively striking irregularities in the management of bidding and tendering. The audit found such problems involving 38.905 billion yuan. For example: It was discovered that in the spot-checked projects of Xinjiang’s development supported by the central government, 1,194 contracts on bidding and tendering were not up to the norms. In the invitation for bids for the civil engineering of Beijing-Shanghai high-speed railway, the Ministry of Railways, in violation of regulations, shortened the time for obtaining the documents on preliminary examination of qualification application from 5 working days to 13 hours and the time space between submission and obtaining from the no less than 7 days generally required to 24 hours.

B. There was no stringent control over the investment and progress of projects. The audit found that the repeated listing of expenses and in-stringent settlement of prices resulted in the increase of 1.029 billion yuan in investment, 13.130 billion yuan in detained and misappropriated construction funds and 12.108 billion yuan in back dues of project costs and service charges. Some projects failed to make progress as planned. A case in point was the safety engineering project of primary and secondary school housing in 54 counties. By the end of 2011, 54% of the task for consolidating school housing and 48% of the task for constructing new school housing had not been accomplished.

C. There were weak links in management of project quality. It was mainly reflected in the fact that safety measures were not in place. Take for example the project of the second pipeline for transmitting natural gas from the west to the east: 171 stations and valve rooms already in operation (accounting for 87% of the spot-checked number) either did not go through the procedures of anti-thunder engineering examination or failed to pass the examination. In the construction of its branch line in Shanghai, 48 personnel at the irreplaceable key posts such as NDT (non-destructive testing) and supervision were replaced discriminately, accounting for 70% of the key personnel.

Regarding the problems point out in the audit, relevant departments and localities have appropriated and recovered 983 million yuan, improved 6 systems including bidding and tendering, control over investment. They have also accelerated streamlining and addressing the problems in the safety engineering of primary and secondary school housing.

VI. Real-time Audit on the Post-Quake Reconstruction in Wenchuan, Yushu and Zhouqu

A. Real-time audit on post-quake reconstruction in Wenchuan. Since September 2008, the CNAO has organized more than 11,000 auditors across the country to carry out Real-time audits for 3 consecutive years. This has promoted the conservation of capital and retrieved losses of 12.39 billion yuan. More than 2,700 systems have been established and improved to promote better management of more than 4,000 projects. The audit shows that, by the end of September 2011, 51 focus-audited counties had completed 858.628 billion yuan of investment, accounting for 90% of the total investment of the post-adjustment mid-term planning. 38,933 projects had already been completed and put to use, laying a solid foundation for the economic and social development in the quake-afflicted areas. The audit results of the two previous years have already been submitted to the NPC. In 2011, the CNAO focused audit on the 939 projects with planned investments of 203.180 billion yuan. It found that 63 projects, 26 construction units, 4 survey and design units and 8 supervision units had, to varying extent, problems of irregular management and imperfect survey and designs. In the audit on the settlement of engineering accounts and the settlement of final accounts upon the completion of 188 projects, 477 million yuan was reduced after examination in the engineering costs, accounting for about 7% of the approved amount. Regarding the problems pointed out in the audit, relevant parties have sternly addressed them and carried out earnest rectification.

B. Real-time audit on the post-quake reconstruction in Yushu. By the end of October 2011, Qinghai Province at the provincial level had received reconstruction capital totaling 29.382 billion yuan. It had completed 19.9 billion yuan of investment in accumulation, accounting for 63% of the total investment. The Real-time audit shows, the management of reconstruction capital and project construction was on the whole good. But due to poor climate conditions, short time limit for projects and other factors, it was difficult to reach the pre-arranged goal to have 100% of the reconstruction of urban and rural residents’ housing started and 90% of it completed in Yushu County in 2011. By the end of October, 2011, only 68% of the reconstruction started and 44% of it completed. In addition, it was discovered that the quality of 3 projects was not up to the designed standard, the responsibilities of supervision over 11 projects were not entirely fulfilled and the construction units of 3 road projects surcharged 9.3844 million yuan of investment in the workload. After the audit pointed out the above-mentioned problems, relevant parties started across-the-board reconstruction of the residual urban and rural residents’ housing in April 2012, retrieved the surcharged money and punished persons held accountable.

C. Real-time audit of the post-quake reconstruction in Zhouqu. By the end of February 2012, the reconstruction capital raised totaled 4.814 billion yuan in accumulation. The planned 170 projects had all started construction. 2.976 billion yuan in accumulation (accounting for 60% of the total planned investment) had been invested. Generally speaking, the reconstruction capital was managed through special accounts and project construction basically up to the norms. However, there were still some problems: 58.431 million yuan of appropriated capital had not been in place, 8 projects involving contracted amounts of 34.237 million yuan failed to invite biddings in violation of regulations, and the payment of 20.7915 million yuan of project funds was remitted directly to personal accounts. In accordance with the audit recommendations, relevant localities and units timely retrieved or appropriated the money and stepped up management of project construction.

VII. Audit on Environmental Protection for Land and Resources

In order to promote the implementation of State policies concerning the protection for land and resources, audit was conducted on the collection and use of capital from land management and transfer as well as the performance of projects utilizing foreign loans in the area of environmental protection in 11 provinces, regions and municipalities from 2009 to 2010. Attention was also paid to the development and use of important energy resources. The audit results show that in recent year various localities have generally established the responsibility system for farmland and environment protection and strengthened protection for land management and resources environment yielding fairly good effect. The main problems found in the audit are as follows:

A. There were, from time to time, such problems as approval for and use of land in violation of regulations, lax management of capital from the incomes of land transfer. Among the 24 focus-audited cities and counties, there were 14 cases in which land was used before approval or was used in the form of renting instead of acquisition in violation of regulations, involving 223,500 mu of land, corresponding to approximately 17% of the index for the newly acquisitioned land for construction in relevant localities. More than 9,200 mu of land was transferred under 9 illegal agreements or in violation of the “bidding, auction and progress-tracking” land system, accounting for 9% of the land spot-checked. Land provision in 4 cases for use of three categories of housing (subsidized housing, renovation of shanty towns and construction of medium- or small-space apartments) for the year 2010 was not up to the required standards. In addition, it was also discovered, 19.841 billion yuan of incomes that was under-collected, retained or illegally used from land transfer was not incorporated into the 9.719 billion yuan (accounting for 9% of the total actual collection in the same period) of budget management of land transfer.

B. In some areas and sectors, the development mode was backward and measures for the protection of resources and environment were not in place. In the area of resources development, there existed such problems as disorderly exploitation and low-level utilization. For instance, among the 24 spot-checked graphite mining enterprises, only 2 possessed the right to legal mining. Among the 36 graphite mining and processing enterprises, only 4 were intensive processing enterprises. The ratio for utilization of graphite resources was 25% below the common international level. In the area of environmental protection and improvement, the overall project of harnessing 14 tributaries of the Yangtze River in the Three Gorges Dam Project area, which should have been completed before the end of 2010, had not been incorporated into the investment plan by the end of October, 2011.

C. In some places, there was no adequate overall planning for the construction of environmental protection projects. The work on sewage treatment, garbage disposal, etc. lagged behind. In the 113 spot-audited projects using foreign loans in the area of environmental protection, 31 projects, owing to inadequate study and evaluation of the construction scales, technological and economic feasibilities, sewage treatment and other facilities with an investment of 1.26 billion yuan, either remained idle for a long time or suffered losses. The spot-checked sewage treatment plants in 18 cities in the north and 10 cities in the south which were short of water, the average utilization rate of recycled sewage water was 3.3% and 0.3% respectively, far below the 20% and 5% goals set forth in the water conservancy program in the “11th Five Year Plan”. The 20 spot-checked large and medium cities accomplished only 42% of the task of enhancing their actual daily capabilities for garbage treatment during the “11th Five Year Plan” period. Among the 65 spot-checked  county-level and 112 township-level medical institutions, 51% and 81% of them did not properly dispose their medical waste materials, resulting in the spread of poisonous, hazardous or contagious virus into the chains of environment or industries.

After the audit pointed out the problems, relevant localities retrieved and standardized the capital management of 5.662 billion yuan, rectified the irregular requisition of 175,000 mu of land, formulated and improved 18 relevant systems and punished 10 persons held accountable.

VIII. Audit on Financial Institutions

Audit on the gains and losses of the new loans extended by 8 commercial banks and asset liabilities of 2 financial institutions shows: These institutions implemented the stable monetary policy fairly well, rationally adjusted the structure of loaning orientation, steadily carried out experiment of financial overall operation and effectively uplifted the level of their operation and management and their capabilities for risk prevention and control. However, there still existed some problems in the lending and borrowing of capital as well as in financial management innovation.

A. In the aspect of capital lending and borrowing, the audit found such problems as loans to projects with incomplete procedures, capital not in place, or capital misappropriated by clients involving 30 billion yuan, of which 13.277 billion yuan was misappropriated for the development of commercial estate. Some medium and small enterprises, for the sake of mitigating their difficulties in capital, increased their participation in non-governmental lending and borrowing activities. The 746 audited enterprises had a surplus of 13.485 billion yuan in non-governmental lending and borrowing by the end of 2011, corresponding to 50% of the scale of financing by banks and other financial institutions. Among the 1,593 spot-checked loans the same year, 75% had their limit for repayment less than half a year, 24% had their interest rates more than 4 times of the basic interest rate for one-year loans. Most of them were under-the-table deals. Some were even illegally raised funds or sub-loans with exorbitant usury.

B. In the aspect of financial innovation management, the problems were mainly as follows: Some financial institutions enhanced liquidity through innovated businesses such as interbank payment and private investment for wealth management, which were not incorporated into the statistics and management of credit scale and not conducive to regulation and supervision. The internal governance mechanisms of some financial institutions were not adaptive to the needs of financial reform and business growth. In particular, the control over layers upon layers of subordinate companies was not in place, resulting in the ineffectiveness of management to some extent.

C. In the aspect of the growth of credit-rating industry, at present, most of the credit-rating agencies in China are small in scale and only engaged in rating business at home. International investment rating activities rely mainly on foreign credit-rating agencies. In the domestic rating market, there exist to some extent such phenomena that rating agencies falsely upgrade the rating at higher charges or scramble for shares in the market. All the 16 audited bond issuing enterprises had, to varying extent, such problems as providing falsified materials in credit rating and application for bond issuance.

Regarding the problems pointed out in the audit, relevant financial institutions have rectified the regulation-violated 25.697 billion yuan, improved 188 regulations and systems and punished 190 persons held accountable.

IX. Audit on Enterprises

As the audit shows, the 15 audited central enterprises were able to implement the arrangement of central policy decisions, step up their independent innovation, optimize development structure and improve internal management, thus constantly improving their business performance and competitiveness. The problems found in the audit are mainly as follows:

A. Some enterprises did not meet the requirements for energy conservation and emission reduction and were lax in implementing the system that “important policy-decisions, important appointments, important project arrangement and the use of large-sum capital must be decided through collective discussions”. The enterprises affiliated to Baoshan Iron and Steel Works, Wuhan Iron and Steel Works and Anshan Iron and Steel Works in recent years constructed new facilities and did not eliminate backward production facilities in violation of regulations. The yearly energy consumption of these facilities accounted for 17% of the total energy consumption of the three enterprises in 2010. Among the 617 major policy decisions made by spot-audited enterprises, 74 violated regulations, causing losses and potential losses of 3.461 billion yuan. In addition, 11 enterprises used 107,500 mu of land in violation of regulations, of which 5,898 mu was devoted to the development of estates and hotels in violation of regulations.

B. Some practices in financial accounting and operation were not up to the norms. As the audit found, 3.825 billion yuan of incomes and 5.908 billion yuan of profits of these enterprises in 2010 did not square with the facts, accounting for 0.07% and 1.47% respectively of their incomes and total profits of the same year. Among these enterprises, 7 underpaid 471 million yuan in taxes, 6 others bought commercial insurances and distributed subsidies in violation of regulations, involving 458 million yuan. In business operations such as purchasing and selling materials, there were falsified contracts, irregular lending of capital and overpaying of project costs, involving 56.378 billion yuan.

After the audit pointed out the problems, relevant enterprises paid 198 million yuan of tax in arrears, recovered 511 million yuan of losses, established and improved 233 systems and punished 87 persons held accountable.

X. Major Violations of Law and Regulations and Economic Crimes Found by the Audit

In the audit, the CNAO referred to relevant departments a total of 112 cases of major violations of law and regulations and economic crimes, involving more than 300 persons. Relevant departments are placing the cases on record for investigation and prosecution. The above-mentioned cases have the following characteristics:

A. Most of the cases involved seeking private gains by utilizing public powers, eating into public resources and damaging public interests. There is a tendency of infiltration into the field of the people’s livelihood. These cases involved 22 persons at or above the departmental level (accounting for 7%). Cases in which the heads of leading bodies sought private gains and participated in corruption by taking advantage of their duties were conspicuous. There were 43 such cases (accounting for 38%). Cases in the areas of finance, land, State-asset management and project construction remained plenty. There were 92 such cases (accounting for 82%). 14 cases were in the fields of medical treatment, social insurance, education and the people’s livelihood.

B. Trading power for money through third parties including intermediary services has become a new form of corruption crimes in some areas. The audit found 14 such cases in which relevant units and individuals gained 576 million yuan of illegal profits. The chief manifestations are as follows: Some companies or individuals, making use of the resources under their control or their relationships in society, provided assistance in getting projects or capital by using intermediaries to participate in such activities as administrative approval, tax preferential treatment, credit extending, bidding and tendering as well as allocation of resources which could have been handled through normal procedures. They also collected “advisory charges”, “consultancy charges”, etc. although no substantive intermediary services were provided. For example: Li Liming, former Executive Director of the Investment Bank Department of the Merchant Securities Corporation, cooked up intermediary services under the pretext that it was necessary to have a third-party financial consultancy or to utilize the “relationship resources” to contract projects. He obtained nearly 30 million yuan of intermediary services by cheating when he was in charge of bond issuance and recommendation for listed companies. He was also suspected of making under-table deals by holding equities of companies planned to be listed. The audit has referred the case to the Securities Regulatory Commission and Public Security organs for prosecution.

C. The development of relevant supervision mechanisms, laws, regulations and systems lagged behind the rapid development of new businesses and new technologies. This provided law-breakers with opportunities. For example, under the circumstances that financing channels were tight, some enterprises and individuals, through accepting or collecting in an organized way bank-committed bills of exchange in violation of regulations and then discounted for cash from banks by cooking up business deals and other materials. In the 4 audit-found cases of attracting capital through financial bills in violation of regulations, relevant personnel and enterprises engaged in speculative reselling of bills gained more than 75 million yuan and 47 million yuan of profits respectively in such practices. 188 basic-level branches of banks had, to varying extents, problems of lax examination and irregular operation by persons at key posts.

Regarding the specific audits reflected in this report, the audit results of 50 central departments, 15 central enterprises, 2 financial institutions, 12 special items and 57 concluded cases have already been announced. As the next step, CNAO will continue to do a good job of announcing the audit results and instruct relevant parties to earnestly carry out rectification as required by the State Council. The State Council will submit a special report to the Standing Committee of the NPC on the overall rectification outcome before the end of the year.

XI. Recommendations on Strengthening Financial Management

A. Deepening financial restructuring and improving unified and integral government budget system. It is necessary to further streamline the relationship between the government and the market and define the authority and obligations of governments at all levels for expenditures according to the benefit scope of public products. It is necessary to incorporate all revenues and expenditures of the government into the budget, report to the NPC Standing Committee excess revenues and major budgetary adjustments, gradually establishing a financial reporting system of the government. It is necessary to adjust and optimize the structure of distributing revenues between the central and local governments according to the principle of authority matching financial powers. It is necessary to earnestly solve the problem that transfer payment accounts for a high percentage in the central government expenditure and special transfer payment accounts for a high percentage in the transfer payment. It is necessary to establish and improve a standardized transfer payment system.

B. Strengthening the development of financial systems and enhancing the efficiency of budget implementation and the quality of making budgets public. In order to fundamentally solve the problems of making no specific budget preparations and making adjustments in the grades and use for items in the course of implementation, it is crucial to establish systems and regulations, define standards and basis, and put into effect the responsibilities and statutory authorities for management. At present, it is necessary to accelerate the improvement of a standard system for fixing the number of staff and quotas for basic expenses, accurately define the scopes for basic expenses and item expenditures, and standardize and unify the contents of departmental budgets to be made public. It is necessary to strengthen links with government functions and financial policies, improve the development of item reserve banks so as to achieve the objectives determined by the budget on schedule.

C. Optimizing the structure of government expenditures and further increasing input in the field of the people’s livelihood. Government budgetary arrangements should reflect the public nature of finance and prioritize safeguards in areas directly related with the people’s livelihood or areas in which there are acute conflicts between the supply and demand of the people’s necessities. To this end, it is necessary to establish and improve a system for appraising the performance of government expenditures on the people’s livelihood, study and determine across the country the items for basic public services and their minimum safeguards, and to narrow the regional disparity in safeguards standards for the people’s wellbeing. It is necessary to further improve the mode of social security system conforming to China’s actual conditions, establish a stable mechanism for financial input and promote the link among, and equal progress of, relevant systems for social security.

D. Streamlining and standardizing such policies as taxation preference and forgiving financial incomes in disguised ways, safeguarding the uniform and fairness of tax laws. It was discovered by the audit in recent years that the practice of forgiving or returning financial incomes prevailed in some places’ efforts in promoting business and attracting investments. This is not conducive to developing an environment for fair market competition. Therefore, it is necessary to streamline and standardize preferential taxation policies, further encourage enterprises in their efforts to enhance their competitiveness through deepening their reforms and encourage localities in their efforts to tap and give play to their special superiorities, so as to achieve healthy and coordinated development under the guidance of the State program for mainstay functional areas.

E. Strengthening coordination between financial policies and other policies and giving play to the overall synergy of macro regulation. It is necessary, in accordance with the overall objectives of macro-control, determine the priority tasks of policies on taxation, credit, industry, trade, investment, land, employment, environment, etc., enhance the coordinative, supportive and operative nature of policies and measures, so as to enable all policies to complement each other and be linked together in an organic way. It is necessary to establish and improve a cross-region, cross-department and cross-area platform for information sharing and coordinated mechanism for integrating resources to solve such problems as “Information Island” and repetitive development of information systems, so as to enhance the timely effect of macro-control.