Pre­vent­ing fi­nan­cial harm through de­tailed au­dits

China Daily (Hong Kong) - - BUSINESS - By JIANG JIANGHUA

Hu Ze­jun, au­di­tor gen­eral of the Na­tional Au­dit Of­fice, pre­sented the Au­dit Work Re­port for 2016 to the 28th meet­ing of the Na­tional Peo­ple’s Congress Stand­ing Com­mit­tee on June 23, in ac­cor­dance with the Au­dit Law and as per the task en­trusted by the State Coun­cil.

The re­port has since been made pub­lic. It shows that the cen­tral bud­get im­ple­men­ta­tion for 2016 was good in gen­eral, with fea­tures like in­ten­si­fied fis­cal pol­icy, en­hanced safe­guards for peo­ple’s liveli­hoods, pro­gres­sive re­forms in fis­cal and tax­a­tion sys­tems, and im­proved bud­get man­age­ment.

The re­port also points out that, with grow­ing aware­ness about fis­cal and eco­nomic laws, and reg­u­la­tions, rel­e­vant de­part­ments and lo­cal gov­ern­ments are cor­rect­ing prob­lems iden­ti­fied in the 2016 and 2017 au­dits.

How­ever, the re­port also dis­closes prob­lems in the fol­low­ing ar­eas: cen­tral fis­cal man­age­ment and fi­nal ac­count draft; bud­get im­ple­men­ta­tion by the cen­tral govern­ment au­thor­i­ties; im­ple­men­ta­tion of ma­jor na­tional pol­icy mea­sures; man­age­ment and use of poverty al­le­vi­a­tion funds; key spe­cial funds; fi­nan­cial in­sti­tu­tions; and cen­tral State-owned en­ter­prises.

Most of the prob­lems were caused by the fol­low­ing fac­tors: man­age­ment modes do not meet the re­quire­ments of re­form; re­form is not im­ple­mented as pro­jected; and poli­cies and mea­sures are not in place or in­ef­fec­tive.

A com­plete work cy­cle is formed from the re­port and pub­lic an­nounce­ment of the au­dit re­sults in the ex­ec­u­tive meet­ing of the State Coun­cil. That is, prob­lem de­tec­tion, pub­lic an­nounce­ment of au­dit re­sults, rec­ti­fi­ca­tion, and pub­lic an­nounce­ment of rec­ti­fica- tion re­sults will en­sue.

This not only proves that the Chi­nese govern­ment at­taches great im­por­tance to au­dit su­per­vi­sion and au­dit rec­ti­fi­ca­tion, but highlights the im­por­tant role of au­dit in pro­mot­ing anti-cor­rup­tion cam­paigns, deep­en­ing sys­temic re­forms and launch­ing pre­ven­tion and con­trol of eco­nomic risks and hid­den dan­gers.

Take lo­cal gov­ern­ments’ debt for ex­am­ple. In re­cent years, the Na­tional Au­dit Of­fice has con­stantly high­lighted changes to lo­cal gov­ern­ments’ debt level.

In 2011 and 2013, the Na­tional Au­dit Of­fice car­ried out two large-scale lo­cal govern­ment debt au­dits. The of­fice in­spected debt sizes, struc­tural changes, debt fi­nanc­ing be­hav­ior, man­age­ment and use of debt funds; an­a­lyzed change trends; put for­ward au­dit rec­om­men­da­tions for sys­temic im­prove­ment and risk pre­ven­tion.

This ef­fec­tively pro­moted debt man­age­ment, curbed lo­cal debt growth mo­men­tum, and con­stantly im­proved debt fi­nanc­ing mech­a­nisms.

As demon­strated by the pre­vail­ing prac­tice of the past years, au­dit has sig­nif­i­cantly im­proved lo­cal debt risk pre­ven­tion and con­trol ca­pa­bil­ity. This has helped set up a safety net and build a fire­wall to pre­vent and con­trol lo­cal debt risks. This is high­lighted by the ef­fec­tive and le­gal use of “three key mea­sures” as fol­lows:

First, an­nounc­ing au­dit re­sults and im­prov­ing trans­parency of au­dit. The best so­lu­tion to lo­cal debt prob­lems lies in open­ness and trans­parency, while the great­est hid­den dan­ger lies in fail­ure to achieve open­ness and trans­parency.

Sec­ond, mak­ing progress in rec­ti­fi­ca­tion of the prob­lems re­vealed by au­dits, and pro­mot­ing the im­prove­ment of rel­e­vant sys­tems.

Third, pro­mot­ing ac­count- abil­ity in­ves­ti­ga­tions and help­ing lo­cal gov­ern­ments and lead­ers ad­min­is­ter ac­cord­ing to the laws.

There is an old Chi­nese say­ing: “Cau­tion is the par­ent of safety.” Although an ini­tial lo­cal debt mon­i­tor­ing and pre­ven­tion mech­a­nism has been es­tab­lished, and rel­a­tively rapid lo­cal debt growth in some re­gions is fully con­trol­lable, it is nec­es­sary to con­tinue to pay at­ten­tion to these prob­lems.

In the fu­ture, au­dit in­sti­tu­tions and au­di­tors should con­tinue to firmly up­hold over­all na­tional se­cu­rity; pay close at­ten­tion to the sit­u­a­tions of lo­cal debt man­age­ment; re­veal and re­port any signs of prob­lems with­out de­lay and con­trib­ute to steady and sound eco­nomic and so­cial de­vel­op­ment.

The au­thor is direc­tor gen­eral of the Au­dit Re­search In­sti­tute of the Na­tional Au­dit Of­fice

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