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2006 "Audit Storm": Stronger than Ever

Seven years ago, the Chinese Government authorized nationwide audits to check the financial accounts of governmental departments, State-owned enterprises (SOEs) and construction projects that used public funds.
The "auditing storm" that began in 1999 achieved startling results that saved the country billions of yuan and revealed networks of crime, corruption, waste and deceit that are being attacked by the Communist Party of China and governments at all levels.
Now, the storm is growing stronger.
Since the annual March session of the National People's Congress (NPC), Li Jinhua, China's top auditor, has repeatedly pledged that: "In this fiscal year [June 1, 2006-May 31, 2007], the 'audit storm' will be stronger than ever."
The auditor-general of the National Audit Office of China (NAOC) came into the limelight in June 2004 when the NAOC made public the results of its auditing on the use of public money in the previous year. It was a first in China, for people to see the names and faces of those who had wasted or pocketed their money. On December 23, 2004, Li told the NPC, China's highest legislature, that all the 222 cases cited in the NAOC report had been dealt with, that 20.8 billion yuan (about US$2.6 billion) in missing public funds had been recovered, and that 744 officials had been disciplined or prosecuted. A week later, the "guardian of national wealth," as he was called in the media, won top honours in CCTV's (China Central Television's) "Magnificent Ten of the Chinese Economy" awards for 2004, an important, national, annual televised event that has been viewed by tens of millions since 1999.
　　
Cautious Optimism
　　Li meant what he said. On March 30, two weeks after the 2006 NPC session ended, the NAOC announced on its Web site that its audits of the 2004 fiscal year had resulted in the discovery of 9.1 billion yuan (US$1.14 billion) in misused public funds; half of these funds were recovered. In June 2005, the office charged 38 central government departments with allegedly embezzling or misappropriating public money to the tune of about 1 billion yuan. In a March 30, 2006, report, the NAOC said that a total of 5.16 billion yuan (US$644 million) had been reclaimed and that 213 officials had been punished for corruption or dereliction of duty, including 76 who had been brought to justice. These central government departments had either returned the monies they had embezzled or had the money allocated in the budgets for the following year to offset earlier misappropriations, the State news agency Xinhua reported.
　　According to the NAOC report, irregularities in the collection of college tuition and other fees totalling 860 million yuan were found at 18 key universities, some operating directly under the Ministry of Education, including prestigious Peking University and Tsinghua University. Beijing-based Tsinghua Huayang Light Energy Company Limited, a subsidiary of Tsinghua University, was found to have set aside, from January 1999 to March 2003, 21.38 million yuan of its profits for distribution among its own staff as bonuses.
　　"The money should have been turned over to State coffers," Xinhua reported.
　　In 2004, the NAOC audited 856 water pollution prevention projects in a dozen provinces and municipalities, including those at Lake Taihu and the Huaihe (Huai River), Liaohe (Liao River) and Haihe (Hai River). About 1.6 billion yuan of 2.4 billion yuan earmarked for pollution control facilities was instead used to buy cars and to build offices and apartment buildings for project officials.
　　In auditing Huarong and three other asset management companies that operate directly under the State Council, the NAOC found that State-owned assets valued at 27.22 billion yuan were handled "improperly," in ways that went against the relevant laws and government regulations, thus causing losses to the State. The four companies were fined and ordered to set things right. As many as 191 of their staff members received disciplinary punishments.
　　In press interviews, however, the NAOC auditor-general spoke of the "audit storms" with cautious optimism. While hailing the "initial results" made by the NAOC over the years, he admitted that much had to be done to set the things right and pledged to organize an even stronger "storm" in 2006 for that purpose.
　　In a related development, seen by some observers as testifying to the increased intensity of the on-going "audit storm," the Central Military Commission, the country's highest military authority, has decided to audit, during the 2006-10 period, more than 4,000 high-ranking officers who are directly involved in dispensing China's defence funds. These include more than 100 "officers with the rank of army corps commander or higher ranks," according to a Xinhua news report. Under China's system of military ranks, a People's Liberation Army officer holding the rank of "army corps commander" is a major general or a lieutenant general. Xinhua also said that during 2001-05, as many as 7,890 military officials were audited. Nevertheless, it made no mention of their ranks.
　　
Crackdown on Commercial Bribery
　　In mid-February, Premier Wen Jiabao called for intensifying the country's crackdown on commercial bribery, especially commercial bribery involving governmental officials. He described this as a "main task" in the nationwide drive to build a clean and efficient government. In response, the NAOC has adopted this as a major task for 2006.
　　Commercial bribery in business transactions has been closely linked with alleged abuses of power by people working in governmental departments and officials. It is no longer a secret that corruption in large-scale public projects is widespread. In several provinces, top officials in charge of road building have been sacked and brought to justice for receiving, from profiteering contractors, bribes in the forms of cash and expensive gifts. In almost all cases, women were offered to those corrupt officials as well.
　　The same problem has also been found also in land acquisitions, property trading, in the purchase of medicines and in government procurement. It is common for those bidding for business to offer kickbacks to potential customers or partners. There has been a public outcry against organized give-and-take of kickbacks in Chinese hospitals.
　　In one example cited in not a few Chinese newspapers, an ex-factory price of a drug, a kind of antibiotics, may be just a few yuan per dose. By the time the patient gets it from the pharmacy of a hospital, the price has snowballed to well over 100 yuan. Aside from reasonable profits necessary to fund a network of distributors and salespersons, the retail costs to patients often includes kickbacks given by the salesperson to almost everybody on the hospital's medical staff-leaders of the hospital (in some cases local health officials as well), the doctors who have prescribed the drug to the patent, the nurses who have taken care of the patient, and the pharmacist who has issued the drug to the patient. Not a few hospitals have gone so far as to order their doctors to hand over, on a monthly or quarterly basis, a fixed portion of the money they have received in the form of kickbacks from drug salespersons.
　　
Audit Law Amended
　　Xinhua and other official media have reported that up to 40 percent of Chinese citizens can ill-afford current skyrocketing medical expenses, largely resulting from the system of "give-and-take" kickbacks found at hospitals. During the 2006 NPC session, numerous lawmakers were quoted as condemning this and other forms of commercial bribery, calling them the "greatest obstacle" to China's efforts to build a "harmonious society under socialism."
　　Li Jinhua said, "To remove this obstacle, auditing must be strengthened."
　　The country's top authorities obviously share the official's view. On March 1, the NPC Standing Committee adopted the amended People's Republic of China Audit Law, which requires government officials to be audited during their terms of service to ensure efficient use of public funds and to prevent corruption. Observers were quick to note that after the amended Audit Law becomes effective on June 1, Chinese officials will be legally obliged carefully use the public monies at their disposal.
　　The amended Audit Law also has a new clause that entitles auditors to audit all leading officials of departments under the central government, as well as local officials at all levels. In plain language, the NAOC and its local agencies have had their powers increased in such a way to be empowered to audit members of the Chinese cabinet and top leaders of local governments. Local audit agencies used to operate under local governments of the corresponding levels, and it would be difficult, if not impossible, for them to check into the books of the top persons in a local government that paid them.
　　The amended Audit Law also empowers auditors to demand that organizations provide electronic financial statements and to verify their integrity and authenticity. This is meant to effectively prevent the concealment of important financial information. In its reporting on the amended Audit Law, Xinhua quoted a top auditor in Hebei Province who revealed that some governmental agencies and organizations were good at cheating auditors, for example, by designing computer programmes capable of falsifying financial statements.
　　"Allowing auditors to ask the audited organizations to provide true records of their electronic accounts will prevent computer-based cheating," said the official, who was identified only as Mr. Zhang.
　　On learning, on hard evidence, that an official has placed public funds in a personal account, auditors shall, with the approval of county-level authorities, in accordance with the amended Audit Law, begin investigations.
　　"Much of the red tape is gone," Zhang said.
　　In China, township and town governments, each with a dozen or so villages under their jurisdiction, are the basic units of governmental administration. Immediately above them are county governments, which operate under city and prefecture governments. Immediately below the central government are governments of provinces, municipalities and autonomous regions, which govern cities and prefectures.
　　"To get things done," one official said, "you've had to go through a magnitude of red tape, virtually at all local levels, if an official happens to be an official at the county or higher levels."