Performance Audit of China

Performance take stock of ChinaPerformance scrutinise ChinaEMPIRICAL go off OF PERFORMANCE AUDIT IN CHINA AND DEVELOPED WESTERN COUNTRIES AND MEASURES FOR THE IMPROVEMENT OF PERFOMORNACE AUDITING WORK IN CHINAINTRODUCTION OF THE DISSERTATIONThe procedure scrutinize is a recent expansion in study ground within these 30 years. Now it is one of the most important and flourishing argonas for goernance visit proceeding in China. The aim of this dissertation is to give a holistic and comparative review on the rising and tuition of surgery size up in western sandwich Countries and China, study the ch wholeenges faced by scrutinize institutions in China, and give recommendations and suggestions to scrutinize institutions in the development of carrying out visit from a scientific and development engineer of view.This dissertation has five partsThe first chapter will begin with the rising of murder take stock in Western Countries and the commentary coined by International boldness of Supreme scrutinise Institutions (hereinafter referred as INTOSAI). A comparison with murder evaluation or motion monitor will be do, and the relationship between surgical operation audited account and separate forms of audit, such(prenominal) as pecuniary audit, environmental audit and management audit will too be reviewed.In the second part, it will give a holistic view of the mental process audit in China issue Audit Office (hereinafter referred as CNAO) and audit institutions at all other takes, from the rising of performance audit in China, to legal mandate, to the audit objects and argonas which covered, to the audit focus of performance audit.In the third chapter, the menstruum status of performance audit in UK, USA, Canada and Sweden will be scanned. The legal mandate given, the audit argonas covered, audit methods employed, the resource allocation will be reviewed and compared. The advanced experience in the performance audit area will be concluded.C hapter 4 of this essay is an investigation of the challenges faced by political relation audit in China in performance auditing. The risks in political system and macro economic environment will be discussed. The interior flaws such as the lack of competences of auditors, the shortage of standard or guidelines will as well as be talked about.In the last chapter, suggestions and recommendations in how to improve performance audit in the context of current China will be given from twain the macro and micro aspects.The Desk study based on a review of the literature is deployed. A large number of books and articles about performance audit manuals, annual reports and handbooks produced by SAIs of some developed countries and China will be categorized and analyzed.INTRODUCTION OF PERFORMANCE AUDITThe Rising of Performance Audit in Western CountriesAs one of the oldest and venerable state functions, audit has a account statement of thousand years. However, the performance audit has ris en and experience a large scale and self-consciously unequivocal cause within the latest thirty years. It is a modern, challenging and fascinating form of audit, and is treated as a check and professional activity that requires specialized skills and standards.Over almost exactly the same period as performance audit has emerged as a distinct variant of audit, the government of developed countries, such as Western Europe, united States of American, Canada, Australia and United Kingdom, have embarked upon series of popular management reforms, which is so called New semipublic Management. Most of the public management reform initiatives emphasized a shift from control of imputes and processes to the new form s of control based on the measurement of outputs and outcomes. (Christopher Pollitt et al, Performance or Compliance, P195).Previously, the administrative system emphasized on the correct allocation of public finances to appropriate budget lines, the compliance of the pra ctice of resources, and conformity of actions with prescribed procedures. The new approaches aimed at modernizing and streamlining the public management process, and giving more flexibility in respect of inputs. Although the details of the reform platforms differed from one boorish to another, most of them highlights on firstly, increasing the productivity of public services, i.e., raising efficacy secondly, the convenience and preferences of its users thirdly, the transparency of public services, which is assumed as a feature of elected governance. Both singly and collectively, these new attributes considerably changed the way of lifes in which public management system has been run in the past.To adapt to the new system, the major precedency of monitoring and control was shifted from the harbors of economy towards the value of efficiency and intensity level and emphasized more on the monitoring and evaluation of outputs and outcomes. The auditors should not solitary(prenom inal) adjudicate on the three Es (economy, efficiency, and effectiveness), but also using creative methodology to access to responsiveness and user satisfaction by directly consulting them. They should also devote to the safeguarding of public accountability and assurance.Due to the diversity in mandate and scope of the audit, in the United States, this new form of audit is called performance audit, while in the United Kingdom, it is labeled as value for money audit (VFM audit). Comprehensive audit is what is called in Canada.Definition of Performance AuditThis definition can be provided in many ways. It can be given by clarifying the distinction between performance audit and other colligate forms of audit, or by mandates and organizational framework which define the performance audit work done, or simply by describing what different SAIs do when they say they are conducting performance audit.The most wide accepted definition is the one coined by INTOSAIThe full scope of governme nt auditing includes regularity and performance audit, and Performance auditing is have-to doe with with the audit of economy, efficiency and effectiveness and embraces(a) Audit of the economy of administrative activities in accordance with sound administrative principles and practices, and management policies(b) Audit of the efficiency of utilization of human, financial and other resources, including examination of information systems, performance measures and monitoring arrangements, and procedures fol number 1ed by audited entities for remedying identified deficiencies and(c) Audit of the effectiveness of performance in relation to achievement of the objectiveness of the audited entity, and audit of the actual impact of activities compared with the in consorted impact. (INTOSAIs Auditing Standards, 1.0.38 and 1.0.40)Within this definition, not lonesome(prenominal) three Es, but also sound administrative principles, serious management are referred as criteria for judgment.In the definition given by the Australian National Audit Office, legislative and policy compliance is also been interpreted as one of the consideration for performance audit.In the Auditing standard of The Government Accountability Office, which was revised in 2007, performance audit objectives may vary widely and include assessments of programme effectiveness, economy, and efficiency internal control compliance and prospective analyses.As described in the Performance audit manual of Office of Audit habitual of Canada, the scope includes not only the examination of three Es, but also environmental effects of government activities, procedures to measure effectiveness, accountability relationships, protection of public assets and compliance with authorities.The Relationship between Performance Audit and Regularity AuditIn accordance with the INTOSAI auditing standards, the full scope of the government audit includes regularity and performance audit. The regularity audit emphasizes on attestation of financial accountability and probity and propriety of administrative decisions. Its core activity is to verify information, whereas the major lying-in of the performance audit is reappraisal and evaluation of the government programs and organizations.For some countries, performance audit differed from the traditional audit in the way they are managed the traditional audit is usually carried out in a standardized way as a repeated annual cycle of checking the books , performance audit, on the contrary, is organized as serial of individually tailored projects varied in their scope, length and focus. The Performance audit is an independent examination do on a non-recurring basis. Specialized skills, separate standards, special planning, and special reports are required.Another difference between the two types of audit is the extent of standardization. The Performance audit, in comparison to financial audit, has a discredit level of standardization in terms of both au diting methods and contents. Within its legal mandate, performance audit must be free to examine all government activities from different perspectives. Thus, the performance audit is more flexible in the choice of subjects, audit objects, audit methodology and making recommendations.Moreover, in financial audits, auditors will tend to judge the transactions being correct or incorrect, legal or illegal, so the criteria the auditors used is relatively clear and fixed. However, for performance audits, the criteria is elect is normally open and sometimes, produced by auditors.In spite of above mentioned differences, in audit practices, the line between these two types of audit is not endlessly clear. For instance, the audit of a financial management system can be both a process in traditional audit and performance audit. operable examples from some SAIs also show the same result.Comparing Performance Audit with Performance EvaluationBoth performance evaluation and performance audit are viewed closely related as external forms of compendium and assessment of the programs or organizations.Performance evaluation is a systematic study of how rise up a program or policy is working and what can be done to improve its results. It is typically commissioned for the purposes defined by the commissioners to provide in a program management cycle.In recent years, the program or policy evaluation is deemed as an important work for a SAI under a general top dog of the performance audit, according to the study result of a working group on program evaluation, it seeks to analyze the relationship between the objectives, resources, and results of a policy or program. GAO of the US defined four common types of program evaluations in performance audit, which are process evaluation, outcome evaluation, impact evaluation and cost benefit cost- effectiveness evaluations.PERFORMANCE AUDIT IN CHINAHistory of Government Audit in ChinaThe auditing supervision system in China can be t raced to the beginning days of the dynasties. As early as Western Zhou Dynasty, about 3,000 years from now, an official position named as Zaifu was set up with the function of perform audit duties and regarded as a rudimentary form of auditing in China.In modern China, after the 59 years after the founding of Peoples Republic of China, the audit work in China went through two different periods.First stage was from 1949 to 1982. No formal and independent audit institutions were established in the first 30 years. The supervision of state financial r all the sameues and expenditures was mainly conducted by internal supervisory bodies of Departments of Public Finance. During that period, the central government and some local governments set up audit institutions within the financial departments and assigned audit personnel to carry out the audit work. However, it was not long that the financial inspection institutions.The second stage started with the provision of formal audit super vision since 1983. The full scale implementation of reform and open-up policy called for efforts to strengthen the supervision on financial administration, establish and improve economic supervision mechanisms. In December 1982, the 5th Plenary Session of the 5th National Peoples Congress follow the resolution to introduce an auditing system in China. The new Constitution made a general provision for the role, mandate, basic principle and administrative system for the audit work. In September 1983, the National Audit Office of the Peoples Republic of China (hereinafter referred to as the CNAO) was established. Local governments at all levels above county level also set up their local audit institutions in succession.The Audit Law of the Peoples Republic of China was formally promulgated in August 1994, which was an important milestone in the audit legal system build. An audit supervision system with Chinese characteristics was built up. Since the establishment of the audit institu tions, audit supervision made great contribution to the rigorous enforcement of financial and economic disciplines and has played an irreplaceable role in facilitating healthy development of the national economy, promoting the building of a clean government.As the supreme audit institution of China, the CNAO is a department of the government and directly under the leadership of the Premier. Its main duty is to formulate the audit strategy, organize and administer audit work nationwide and reports its work to the State Council.Local audit institutions, under the dual leadership of the administrative heads of their identical level governments and the audit institutions at their next higher(prenominal) levels, organize and manage the audit work within their jurisdiction. Their audit work is mainly under the circumspection of audit institutions at the next higher levels, and they are legally required to report to their corresponding level governments as well as the next higher level a udit institutions in keeping with the principle that independence is an indispensable feature of a successful audit.Audit directly conducted by the CNAO covers the following areas (Audit Law, word 18 to 25) Under the leadership of the Premier of the State Council, exercise supervision through auditing over the implementation of the budget of the Central Government as well as other revenues and expenditures, and submit audit reports thereof to the PremierRevenues and expenditures of the Central Bank, assets, liabilities, profits and losses of central monetary institutionsCarrying out audit supervision over the financial revenues and expenditures of public institutions of the State and other public organizations using fiscal capitalRevenues and expenditures of central government owned enterprises and enterprises where state assets dominate or broodRevenues and expenditures related to funds managed by relevant departments of the State CouncilRevenues and expenditures of projects with loans and assistance from international organizations and foreign governments. During the past 25 years, audit work in China has made great strides forward and scored remarkable achievements. Audit supervision has become an important and indispensable part of the national supervision system. The social impact of audit is worthy steadily stronger.The Rising of Performance Audit in ChinaVigorously launching performance audit is an important task set by both the Strategic Plan of the Development of Audit Work for 2003 to 2007 and the one for 2006 to 2010. It is a major move for audit institutions to implement the scientific outlook on development, to comprehensively perform their duties in accordance with law, and to vigorously push forward the building of resource-saving- type society, as a response to the summon of the central government.In the history of the CNAO, finding problems of violation of laws and regulations and of embezzlement and corruption is always considered the most important role. However, with the development of social economy and democracy, there is another problem worthy of notice. That is low value for the use of funds and losses and wastes, due to faulty decisions and maladministration .This kind of problem does not often attract too much of the flocks attention. But, in fact, it would bring about much more serious harm than embezzlement and corruption. Take Image Project for example, the construction of project would take up a large amount of Funds of public finance, and yet, it is unable able to bring about benefit to the lives of the ordinary people and it also in no way plays a role in accelerating the economic constructions across the whole nation. Actually, it is just a kind of waste of resourceAccording to the statistics of IMF (World Economic observation post Database, International Monetary Fund, April 2008), until the end of 2007, GDP per capita of China has reached US$2,360. Moreover, in the most vigorous economy development s area, east provinces in China, GDP per capita has reached US$6000, which per fountain this area had crossed the threshold of initial stage of modernization. From the historical perspective of the development of international government audit, US$3,000 GDP per capita represents the stage of rapid development of performance audit practices in the advanced west countries, such as Sweden, United Kingdom, during the 60 to 70s of the 20th century.Such a period is also a time prone to social contradictions and problems and in particular, a crucial time characterized by quick changes in the form of economic growth in the economic system and speedy social reconstruction. The Chinese government is making great efforts in self-improvement and strength public administration. Accountability and performance are the detect elements and areas of the concern in the concept of modern public administration. It has been aware that the work and accomplishments of the government still fall somewhat s hort of what circumstances require and the people expect. The functions of government have not been completely transformed and public administration and public services are still weak. Some government departments have been co-occur responsibilities, their powers and responsibilities are not well matched, some try to shirk their responsibilities, and their performance is poor. The problems of formalism and bureaucratic behavior are fairly common, and fraud, extravagance and waste are quite serious. Oversight mechanisms and checks on government means are not strongly expected.Performance audit is also the inevitable necessary outcome in the promotion of democracy and the rule of law. The citizens are more and more concerning the public administration issues, and paying more attention on the ethereal and efficiency on the use of public fund. As an independent oversight institution, the CNAO was attached with great importance on the supervision of the shifting of government functions to a more agile public management and social services, and the gradual transformation of the government from the traditional mode characterized by managing everything by itself, to a government with limited functions, which is more transparent and accountable and service-oriented.Current Status of Performance Audit in ChinaThe Article 1 of Audit Law, which came into effect on 1 June 2006,gave the legal authority of audit institutions for the implementing of performance audit.It says Law is formulated in accordance with the Constitution, with a view to strengthening State supervision through auditing, maintaining the fiscal and economic holy order of the country, improving the efficiency in the use of government funds, promoting the building of a clean government and ensuring the sound development of the national economy and society. (Audit Law, Article 1)However, even before the promulgation of the new amended audit law, the performance audit practices have existed in China since the beginning of 90s of twentieth centuryThe first stage is from the beginning of 90s to the middle of it. During that time of period, the performance audit was mainly carried out for the performance outcomes of state- owned enterprises.According to statistics, in 1984, the very next year the audit insinuations at all levels were formed, during the process of traditional financial audits for 1263 enterprise, economy and efficiency of these enterprises draw attention of the auditors. Among the financial impact of the auditing findings of 3 billion RMB Yuan, nearly 1 billion was caused by the less economic and efficient use of funds.It was stated in the Annual National Audit Work meeting in 1991 that audit institutions at all levels should identify some large- or medium- sized stated-owned enterprises as regular auditees. The audit scopes not only include the truth and fairness of financial revenues and expenditures, but also extend to the test of internal control and performance out comes. Proper audit evaluation should be made to improve the economic efficiency (The Memo of Annual National Audit Work Meeting, 1991). Statistics show that during the ten years after the formation of CNAO, the total financial impact of the performance audit to these state- owned enterprises totaled to 21.1 billion RMB Yuan.From the middle of 90s, the performance audit in China turned to a brand new stage. At this stage, the audit scope shifted from the state-owned enterprises to the major investment projects funded by the government. The emphasis of the audits is put on the economic benefits to the efficiency and effectiveness of these projects.During this time, the performance audit practices were conducted during the audit of major investment projects such as the project of Conversion of Farmland to Forest, the Fund Use of Migration in Three Gorges Reservoir Area, and the Construction of Airports. With the implementation of performance audit methodology, it was not only the prob lems but also the root causes of these problems were revealed, which had a profound impact in the society.The criteria on the selection of audit topics areThe projects which are heavily invested by the government and great attention were paid by the national congress and the taxpayers.The availability of the resources in terms of the competences of auditors and budgetThe timeliness which are closely relevant to the current public administration reform.As well, audit institutions, in accordance with the relevant regulations of the State, carry out supervision through auditing the principal leading persons of government departments and of other units as to compliance about the financial revenues, expenditures and the economy, efficiency and effectiveness of relevant economic activities of their districts during their terms of office. This is a type of comprehensive audit which integrates the compliance and performance audit.From January to November of 2007, the total input in terms of human resources in audit institutions at all levels had amounted to one quarter of the total, which is ten percent higher than the same period of last year. Among the 30 audit projects launched by the CNAO, half of them were performance audit projects, which covered the major infrastructure investments at a national level such as South-to-north Water Transfer Projects, special funds on Disaster Rescue, and projects financed by foreign governments and international agencies. Besides, Performance evaluation is also structured in the traditional audit areas, such as budget implementation audit. Hereby, the volume of performance audit work amounted to two thirds of the total of the CNAO, also showed a ten percent rise in comparison to 2006. (The Memo of Annual National Audit Work Meeting, 2008)The focuses of these performance audit projects are not only to disclose the improper policy decisions, the waste in public expenditures and infrastructure projects, but also to reveal the detai ls in information security, the quality of constructions, environmental and ecological protections. Only within the 11 months from January to November in 2007, the financial impact on waste amounted to 27.1 billion RMB Yuan, and accordingly the investment on construction was reduce by 29.1 billion RMB Yuan.CURRENT SITUATION OF PERFORMANCE AUDIT IN UK, USA, CANADA AND SWEDENWith the intent of giving a picture of the performance audit framework of the above four countries and making a comparison with Chinese National Audit Office, the performance audit mandates, the audit scope, the resources employed and the audit criteria deployed of and by these SAIs will be investigated in this part.Performance Audit in UKThe National Audit Office (NAO) of United Kingdom has existed in its present form since 1983, but the public audit function in United Kingdom central government has a much longer history and used to be taken by the former Exchequer and Audit Department. NAO is independent from t he government and works on behalf of the Parliament and the taxpayers to hold government to account for the utilization of public funds, provide independent analysis and assurance to Parliament and to help to improve public services performance.In UK, a value for money examination is defined as the assessment of performance, identifies honorable practice and recommends improvements to economy (keeping costs down), efficiency (getting more output for what is spent) and effectiveness (delivering the desired results)( Annual Report of NAO, 2008, P10), that is 3 E audit.Performance audit practice has a long history under the instruction of the Parliament, especially, the Committee of Public Accounts, however, until 1983, no statutory authority was given to this new type of audit. In 1983, performance audit has been established as a distinct form of audit through National Audit Law, which gave a new foundation for the new National Audit Offices value for money audits.The major value for money reports produced by NAO focuses on how specific government projects, programmes and activities have been implemented. They examine the way policies have been put into effect and assess whether that represents value for money for the taxpayer. Just like Office of Audit General of Canada, no comment should be made on the policy itself.The topics under examination are identified by monitoring and analysing risks to value for money across the sheer range of government expenditure. NAO also try to keep our performance study topics flexible to accommodate emerging issues. Besides, proposals from Members of Parliament and in particular from members of the Committee of Public Accounts are also been taken careful account.Each year, around 50 values for money reports are delivered and investigated to the Parliament and the Committee of Public Accounts.In 2007, NAO produced 60 value for money report, and the sustain financial impacts of these reports amounted to 656 million, an increas e of 74million over last year, which also representing a return of over 9 for every 1 expenditure of running the National Audit Office. (Annual Report of NAO, 2008, P4)Ultimately, it is for the control and Auditor General to decide which studies should be undertaken.In terms of fund resources, about a quarter of the NAO budget, which amounted to 25.2 million, was spent on value for money audit, delivering the main programmes of assurance to the House of Commons.In terms of human resources, 238 of staffs, out of the total 845, are employed for the value for money audit purpose.Sustainability was also a feature of other reports during the year. The report on the Thames Gateway disclosed that the Governments vision for high quality, low carbon footprint, and sustainable developments in the region had not yet been translated into clear objectives, local strategies or developed plans.Performance Audit in USAThe Government Accounting Office of United Stated was established in 1921. GAO is an independent, nonpartisan, professional services agency in the legislative branch working for the Congress, and commonly known as the audit and investigative arm of the Congress or the congressional watchdog. GAO examines how taxpayer dollars are spent and advise lawmakers and agency heads on ways to make government work better. by and by World War II GAO began to perform more comprehensive audits that examined on only the financial compliance but also the economy and efficiency of government operations. By the 1960s, GAO had begun to perform the new type of audit, performance audit, which aimed to examine whether government programs meets their objectives. In 1970, the Bureau of the Budget and GAO agreed to establish government auditing standards. In 1972, the Comptroller General issued the first edition of the Standards for Audit of Governmental Organizations, Programs, and Activities Functions, which was known as the Yellow Book. In this yellow book, GAO decided to extend it s audit scope to performance audit, and defined its audit goals as check the financial activities and their compliances with current laws and regulations the economy and effectiveness of administration works Furthermore, their effectiveness in reality.During the last 20 years, GAO has sought-after(a) to improve accountability by alerting policymakers and the public to emerging problems throughout government. Effective July 7, 2004, the GAOs legal name changed to the Government Accountability Office. The change better reflects that GAO has become the modern professional services organization. The mission of GAO is to support the Congress in meeting its constitutional responsibilities and to help improve the performance and ensure the accountability of the federal official government for the benefit of the American people.Not like SAI in other countries, GAO is a legislative branch agency, so it is exempt from many laws that pass to the executive branch agencies. However, it general ly obeys the spirit of many of the laws, including Federal Managers Financial Integrity Act, the Government Performance and Results Act of 1993, and the Federal Financial Management receipts Act of 1996.The Federal Managers Financial Integrity Act emphases ongoing evaluations and annual reports to assure the adequacy of the internal accounting and administrative control of each agency. For the quest of improving public confidence in federal agency performance, the Government Performance and Results Act 1993 requires that federally funded agencies should develop and implement accountability systems based on performance measurement, including setting goals and objectives and measuring progress toward achieving them. The Federal Financial Management Improvement Act 1996 stresses on improving federal financial management by requiring that federal agencies implement and maintain financial management systems that comply with the requirements of federal financial management systems, appl icable federal accounting standards, and the U.S. Government Standard General Ledger.In later years, GAO gave the yellow book a more concise title, Government Auditing Standards, and updated periodically. In the latest revision of the auditing standards in December 2007, it emphases on enhancing performance audit standards that elaborate on the overall framework for high-quality performance auditing, including reasonable assurance and its relationship to audit risk, and the levels of evidence used to support audit findings and conclusion.GAO performs a series of oversight-, insight-, and foresight-related engagements, a vast majority of which are conducted in response to congressional mandates or requests. GAOs audit scope includes financial and management audits, evaluations of federal programs and performance, policy analyses, legal o