The Hindu Business Line : A `storm' that rages on in auditing

Whether it is corruption or bureaucracy, the best cure is publicity and transparency, and the adoption of sunshine policy. — MR LI JINHUA, AUDITOR GENERAL OF PEOPLE'S REPUBLIC OF CHINA

A quick search for `audit' news brings up enough to make your coffee bitterer than it really could be. For instance, "Shares of Adept Technology Inc, a developer of robotic systems, tumbled more than 20 per cent in Monday morning trading, after the company discovered accounting errors while conducting a year-end audit," informs www.mercurynews.com. Perhaps, robot-ising accounting may eliminate the vagaries of human errors?

Another `horror' story in the field of auditing is about a fraud in a school curricula programme. `Open All the Books On Reading Funds,' reads the headline on www.freep.com, and the story is about how a recent audit revealed `mismanagement and failure' of a multi-billion dollar Reading First initiative in the US. It seems "officials actually broke the law by trying to force certain curricula onto school districts," and contracts were doled out `based on favouritism'.

The Taipei Times has a report dated September 19, with the headline `China audit says billions misused'. The AFP story cites 21st Century Business Herald to say, "State auditors have handed over the names of 38 leaders and 92 other officials to judicial authorities for prosecution in the latest `audit storm' against corruption." The `audit storm', one learns, "has become one of the latest tools of the central government to crack down on official corruption."

A posting dated September 18 on www.chinaeconomicreview.com cites `the latest report by the National Audit Office' to say that "no central government ministries or organisations were found to be clean of financial malpractices - ranging from budgetary abuses to spending state funds on staff housing."

Our next logical stop is the site of the National Audit Office of the People's Republic of China (www.cnao.gov.cn). "As early as Western Zhou Dynasty, about 3,000 years from now, an official position named as Zaifu was established with the function of performing audit duties and regarded as a rudimentary form of auditing in China," traces the `About Us' section. "Since the establishment of the audit institutions in 1983, especially with the promulgation of Audit Law of the People's Republic of China, the building of audit regulatory framework, the expansion of the audit scope, the compilation of audit standards and the exploration of audit means and approaches, auditing in China has gradually taken the path of legalisation, systematisation and standardisation and played positive roles in increasing revenues and decreasing expenditures, improving macro-management, strengthening administration by law, protecting the benefits and interests of citizens, and building clean government." Quite a mouthful, but it is not merely hot air.

For, one of the audit reports on the site, titled Findings of Examination of Audit Operating Quality of 16 Accounting Firms, dated September 28, 2005, observed that 19 audit reports issued by 37 certified accountants of 14 accounting firms were `inconsistent with facts' or had `oversights and omissions'.

Interestingly, companies have been identified consistently as `a certain listed company' or `a certain listed corporation', while accounting firms have been named in the report. "The Ministry of Finance had made decision on penalising the related certified accountants of Zhongqing Wanxin Accounting Firm Ltd, and Securities Supervision Commission had put forward opinions related to good deal of attention to supervision to Hunan Kaiyuan Accounting Firm Ltd and Shanghai Wanlung Zhongtian Accounting Firm Ltd," concludes the report.

Items on `What's New' are dated May 8. A significant one is about extending `fiduciary duty audit of leading officials at provincial and ministerial level on completion of their terms of office'. Mr Li Jinhua, Auditor-General of People's Republic of China explains that the `extended audit', which would first be on `a trial basis', is aimed at inspecting whether officials leaving office have `some economic problems during their tenure'. He emphasises that such an audit is "an important step to promote the building of clean government and curb corruption."

A search for `audit storm' takes one to a July 2004 article on www.china.org.cn. "On June 23, Chief Auditor Li Jinhua submitted a report to the 10th National People's Congress (NPC) Standing Committee that shocked the nation," it opens. "The National Audit Office had uncovered misuse of some 1.4 billion yuan ($170 million) from the 2003 budget."

The article sourced from China Business Post, and translated by Tang Fuchun, informs that Mr Li's office had found five main problems, as follows:

Fraud, embezzlement and misuse of government funds allocated to disaster relief, education, the Olympics and treasury bonds, by organisations of both the central and local governments.

Financial irregularities at banks resulting from inadequate supervision.

Tax irregularities, with some tax bureaus failing to collect taxes or failing to suspend or terminate levies when so ordered.

Illegal requisitioning of land for development, with some local governments abusing authority in order to obtain profits.

Misrepresentation and fraud employed by private enterprises to obtain bank loans.

The audit was probably one of `a number of macro-control measures' implemented `to avoid economic overheating'. And more: "The main cause for concern has been excessive government investment, including development zone expansion and `vanity' construction projects. Another major problem area is sizzling growth in the real estate sector, which transfers the cost of demolitions to the government." Ominous, because we may have a similar problem with SEZs (special economic zones).

Mr Li, who is now on his second term, "was elected as the Person of the Year by Southern Weekend in 2004 for his leading role in the audit storm," informs Wikipedia. "He is a Certified Public Accountant (CPA) and Senior Auditor," says www.oecd.org. "Dubbed `iron-faced' auditor-general by the media," notes http://english.people.com.cn, in a 2004 interview.

"Whether it is corruption or bureaucracy the best cure is publicity and transparency and the adoption of sunshine policy," Mr Li had said in the interview. "Audit is not only a kind of supervision it is also a tool in pushing ahead democratic and legal construction," is another one-liner of Mr Li.

Importantly, Mr Li acknowledged in the interview that the Party Central Committee and the State Council give a lot of support to audit work "The greatest support is the non-interference." Read on: "He said over the six-plus years when he works as auditor-general no leaders, from the General Secretary to the Premier, to the Vice-Premiers and other leaders in the central government, have ever `sent notes' (a figure of speech denoting unofficial instructions from a senior leader) to him."

Latest news is that the noose is only getting tighter. `China vows tighter auditing of banks,' says a September 25 headline on www.cctv.com. The guidelines, which take effect `immediately', are for `the development of the country's auditing work for the 2006 to 2010 period.' Another report, on Sydney Morning Herald, announces `Party head latest to roll in Chinese graft exposé'.

Mr Li is a celebrity. `ACCA Awards Chinese Auditor General Li Jinhua,' says www.accaglobal.com in a March communiqué. This was in recognition of the `tremendous contribution' he has made `to raise the social position and influence of accounting and auditing in China' and for creating `conditions for international convergence of Chinese accounting and auditing profession'.

Mr Li also won `the annual China Economic Celebrities award presented by CCTV'. More than 25 million votes were cast, and there were an additional 3,80,000 SMS votes, informs www.chinadaily.com.cn about the CCTV award for the `Magnificent 10'. Li topped the list by winning nearly 2 million votes!

Mr Li admitted at the award function that his staff at the NAO had hesitated before deciding to report the cases to the NPC for fear of "making too many enemies." He said, "It was the sense of responsibility to the nation and the people that prompted us to pluck up the courage to do so."

Mr Li declared at the soiree: "I'm speaking on behalf of all the 80,000 men and women working in auditing offices across the country when I say `We won't let you down'." And added, "The `auditing storm' will continue."

http://AccountSpeak.blogspot.com

D. Murali

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