Exploring the Model of Performance Audit
in Zhejiang
(By the Study Team of Zhejiang Provincial Audit Office)
Performance audit represents a necessary trend in the development of modern audit. It is the
nucleus of contemporary audit and an important channel to achieve development for the audit
cause itself. Zhejiang province is a front-runner in the national economic and social development.
To keep pace with the demand of such development and create conditions for promoting a shift
from traditional audit to modern audit has become the consensus of auditors in Zhejiang. In the
exploration of performance audit, Zhejiang province should stand at the forefront of the country in
the effort to establish a performance audit model with Zhejiang characteristics under the current
conditions of economic, political, administrative and social development. With a view to
accelerating Zhejiang’s economic and social development in a quicker and better way, it has
become an important subject of study for audit institutions at all levels in Zhejiang to make active
efforts in exploring a befitting performance audit pattern commensurate with the level of its
economic and political development and compatible with the realities of Zhejiang’s audit work. It
is also the key element in accelerating the fundamental change in Zhejiang’s audit work from the
traditional to the modern audit model.
1. Background analysis in structuring Zhejiang’s performance audit model
(1) Performance audit is the necessary demand by Zhejiang’s economic and
social development
This year, Zhejiang’s GDP per capita has reached US$3,000 and Zhejiang has become one of
the provinces with the most vigorous economy and highest level of development in the country.
US$3,000 GDP per capita is a symbolic number, indicating that Zhejiang has 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 in performance audit for the advanced countries in the West during the 60 to 70s of
the 20th century. Zhejiang has today ushered in a period of golden opportunities for rapid
economic development. 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,
swift transformation in the economic system and speedy social reconstruction. Due to the fact that
Zhejiang is much earlier than most other provinces in getting to the stage of US$3,000-5,000 GDP
per capita, problems and challenges on the road of development have also stood out at an earlier
stage and in a more comprehensive way. As compared with the traditional truthfulness and legality
audit on financial revenues and expenditures, performance audit can resolve various outstanding
contradictions and problems and play a more important role in enhancing the smooth
transformation of the economic and social system. For this reason, the current level of Zhejiang’s
economic and social development has decided that the audit work in Zhejiang has come to a
crucial period in its exploration of performance audit.
Performance audit is the inevitable demand in the development of public administration and
the necessary outcome in the promotion of democracy and the rule of law. From the concept of
invigorating public administration, the economic and social development of Zhejiang will
inevitably push for changes in the management perception and in the advancement of the reform
in its administrative system. Accountability and performance are the key elements and areas of
concern in the concept of modern public administration. It attaches great importance to the
responsibility of the government towards the society, the shifting of government functions to a
more energetic public management and social services, and the gradual transformation of the
government from the traditional mode characterized by managing everything by itself, seclusive in
working style and power or interest oriented, to a government with limited functions, which is
more transparent and accountable and service-oriented in style. State audit is an important tool in
achieving this goal of modern administration. As the building of democracy and the rule of law
forges ahead in our country, the public will surely pay more attention to the efficiency and
effectiveness in governmental administration. In order to address the intensive concerns of the
state, the government and the general public on the administrative performance, government audit
will definitely need to transform itself step by step from the traditional pattern of auditing
financial revenues and expenditures to a new model of performance audit.
In view of the need to establish a public financial system, emphasis on social
management and public services is a natural product when economic development
reaches a certain level. In recent years, financial revenues of Zhejiang are on the
increase and the province has basically acquired the preconditions for the
establishment of a public financial management system. In accordance with the
demand of the public management system, stepping us the transformation of the
public financial system has become the inevitable choice of governments at all levels.
In this connection, performance audit provides exactly the effective platform to meet
the objective need of Zhejiang’s economic and social development at the current stage,
which will guarantee the formation and perfection of the public financial framework
suited to the socialist market economy, strengthen the supervision and assessment of
the movement and efficient use of public financial funds, and ensure the change from
the traditional audit to contemporary auditing.
(2) Performance audit is an effective way to break the limitations of
traditional audit over financial revenues and expenditures
The working style of audit work in our province is yet to break away from the limitations of
the traditional truthfulness and legality audit on financial revenues and expenditures. Moreover,
the planning and management of audit projects, the appraisal system for audit outcome, the
management of audit procedures and the assessment of audit quality still bear a distinguishable
mark of the system of planned economy. Audit institutions devote most of their time and energy to
meeting the quantitative requirement of audit projects, checking and addressing cases of violations
of the law and discipline. But they have not paid enough attention to the utilization of audit
findings, nor have they conducted due analysis on the problems exposed from the point of system
and regulations, or put forward any method or recommendation for the solution of the problems.
To change this situation fundamentally and ensure the transformation of audit organs from the task
and procedure oriented pattern to a pattern focused on the audit goals and efficiency, government
audit must make a major breakthrough with regard to the audit objective and audit model. Any
prolongation of the past practice will negatively affect the healthy development of government
audit in our country.
Audit of financial revenues and expenditures regards truthfulness and legality as its objective,
whereas performance audit takes the audit outcome as its goal. With the gradual elevation of the
level in social and economic development, the time is over when the appraisal standard of audit
work is based chiefly on the number of audit projects undertaken or the amount of fraudulent
funds discovered in violation of disciplines. Instead, the result-oriented performance audit that
puts emphasis on audit outcome and efficiency has demonstrated an increasingly greater potential.
Recent audit practice in Zhejiang has also shown fully that establishing a model of performance
audit in Zhejiang is the effective way to address the defects of the audit on financial revenues and
expenditures when it comes to the utilization of audit objectives and findings.
On the technical side of auditing, since there still exist many loopholes with the current
system of management by the government as well as enterprises and companies, the accounting
theory and principle based on “accounting assumption” has encountered a serious challenge.
Cases like “Enron” in the United States and “Qiong MinYuan” and “Yin Guang Xia” in China
have all shed light on the limitations of financial audit in confirming the truthfulness and legality
of the economic information data. Li Jinhua, the Auditor-General, once pointed out that “Some
units and individuals used to play near the delicate borderline of truthfulness and legality, taking
advantage of the loopholes in our laws and policies and often exploiting ‘the technique of fair
value’. By making use of linked transactions, they try to change the price fixing formula and use
other inappropriate method to cause asset transfers, thus jeopardizing the interest of the State and
the majority of stakeholders”. If audit work is conducted within the framework of existing
accounting policies and financial regulations, audit conclusions thus drawn concerning
truthfulness and legality will also have limitations. Government audit takes financial audit of
government fund as its main area of function. If audit work is concerned with only confirming if
the budget funds have been spent in a “genuine and lawful manner”, but not with an examination
on the working goal of governmental offices or with an appraisal of their working efficiency,
effectiveness and actual achievements, such audit activities will deviate from the fundamental goal
and go against the basic nature of audit work, thus rendering them worthless in real terms.
(3) Performance audit is the inexorable trend in the process of audit development
Looking back at the course of its development, performance audit came into being during the
40s of the 20th century in the western world. But the real modern performance audit took shape
only in the 60-70s of the 20th Century. During the half a century since its birth, performance audit
has been the subject of all-round intensive research and practice all over the world, in particular, in
the advanced market economies in the West. Statistics show that performance audit takes 60-80%
of the total audit resources in countries like the United Kingdom, Australia and Finland, while the
ratio is as high as over 85% in the United States. In the history of government audit, the
implementation of performance audit serves as a catalyst with epoch-making significance.
The essence of government audit shows that the introduction and development of audit is
based on the existence of the relationship of economic accountability and the system of balanced
jurisdiction and accounting management. Of these elements, the relationship with regard to
economic accountability is the fundamental cause for the birth of the audit system, whereas
accounting system provides an information base that reflects the overall picture of the economic
activities. By way of checking the accounting information, auditing will eventually be able to
establish or remove questions concerning economic accountability. Truthfulness and legality in
financial revenues and expenditures is but one aspect of economic accountability, whereas
efficiency, effectiveness and value are more important elements. Therefore, financial accounting
per se is not the objective of audit, but the basis and means to realize that objective. When the
audit of financial revenues and expenditures cannot meet the need in establishing economic
accountability, or when there are better ways and means to do so effectively, audit work will
naturally break the restraints of financial revenue and expenditure auditing and move on to a
higher level of performance audit.
(4) The realistic basis for the model of Zhejiang’s performance audit
The past two years have witnessed remarkable changes in the concept of audit work in our
province. As required by the “five-year plan” which calls for the “ two changes”, ideas that audit
findings should be boosted by innovating the system and that audit resources be reorganized by
reforming its procedures have gone deep into the heart of the people. This has provided an
ideological foundation for Zhejiang’s audit work to break the restraints of the traditional audit
and push for a quick shift to the modern audit model. In real audit practice, much we are doing
now already bears the mark of performance audit, such as audit investigations on the use of
special financial funds, the concurrent audit on the performance of financial investments in the
province, the follow-up audit of construction projects and the audit on economic accountability for
city mayors and county level leaders. All these are effective forms of performance audit at the
present stage. As far as the outcome of performance audit is concerned, the comprehensive audit
reports, special reports and information gathered often functions as a useful carrier. On the
technical side, our province has devoted huge effort in audit information building and computer
technology is playing a more and more important role in audit work, which in turn has prepared
the necessary technical conditions for conducting performance audit. Experiences gained thus far
by all levels of audit institutions in the course of exploring and practicing performance audit have
laid a solid foundation for a more intensive exploration on the model of performance audit in
Zhejiang province.
2. Exploring the model of performance audit in conformity with Zhejiang’s
realities
(1) The basic direction of performance audit with Chinese characteristics
Serious retardation in theoretical study and insufficiency in overall practice
represent the current status of performance audit in our country. In academic circles
on the subject, researches on performance audit remain basically on the stage of
introduction and grafting of performance audit of other countries. While performance
audit abroad has provided us with certain useful experiences, the basic condition in
our country has decided that China cannot simply copy the model of the West.
Although performance auditing in the West is also diversified in history and basic
modalities, they are generally based on two major foundations. First, the historical
assignment of truthfulness and legality audit is basically over, financial accounting
activities have been regulated, violations of laws and principles are on the decrease
and accounting information is on the whole true to life and compliant with the law.
Second, they have a complete set of scientific criteria as the basis for the assessment
of performance audit. In our country, such pre-conditions and the environment as in
the West are not yet in existence. However, we cannot afford to delay the practice of
performance audit if the question of truthfulness and legality is not completely solved,
nor can we wait until a full set of appraisal system for performance audit is
established. Realities have dictated that we have to depart from the actual conditions
and go for the exploration of a model of performance audit characteristic of China.
We believe the model of performance audit with special Chinese features must
be in conformity with the Chinese style of modernization. Viewed from the pattern of
economic and social development, the modernization of China is striding forward in
company with the gradual transformation of the system from the traditional planned
economy to a fully-fledged modern market economy. This is an evolutionary process
with reform and opening-up as its main theme. Now and for a period to time ahead,
the main task for China’s modernization is still the solution of conflicts and problems
with the system, mechanism and management. At this special time, the solution of
such problems along these lines will produce the quickest speed and greatest effect for
that purpose. This has made it decisively clear that the exploration and practice of
performance audit in our country must center around China’s strategy of development
and the establishment and perfection of the socialist system of market economy, with
special effort to be made on solving in a fundamental way the most conspicuous
problems relating to the system, mechanism and management.
In our country, the question of truthfulness and legality with regard to financial
revenues and expenditures is not only the object of traditional financial supervision
and check-ups, but also the performance audit objective that deserves much work to
be done from the point of the system, mechanism and management. Audit of financial
revenues and expenditures deals with the external form, while performance audit
addresses the internal essence of the problem. In launching performance audit, the
western countries have adopted a more specific, generally acknowledged and
relatively stable assessment standard. But that is not fully compatible with the
conditions of our country today. The assessment standard we want to establish must
be in conformity with the need of reform and development. It should be
macro-oriented, generally understood and accepted by the people and should also be
compatible with the scientific outlook on development. To be more specific, as
Deputy Auditor-General Liu Jiayi pointed out, “the prevailing laws and codes and the
common understanding of the people” should be taken as the basis of operation.
Therefore, the solution of problems with the system, mechanism and management in
the course of economic and social development has become the principal objective
and direction for China’s performance audit as well as the major basis for establishing
the assessment criteria in performance auditing.
(2) Special features to bear in mind in structuring the model of performance
audit in Zhejiang
a.
Our exploration should focus on a model of macro-management in
performance audit. At present, the audit academic circles pay more
attention to the introduction of performance audit from the West that is
based mainly on a quantitative analysis of the technical and economic
objectives. They stress the point that audit basis and criteria can be
judged in quantitative terms and they should be scientific and generally
acceptable by the public. However, as viewed from the current status of
economic and social development in Zhejiang and the actual need of
local Party committees and government at all levels, performance
audit in general should be more of macro-management in nature with
the focus on achieving the goal of solving problems related to the
system, mechanism and management.
b.
Our exploration should be on a result-oriented model of
performance audit. It is a change of pattern, a transition from the stage
of procedure-oriented audit to the stage of result-oriented audit, which
differs from the current pattern of audit on financial revenues and
expenditures. Government audit at the current stage is a law
enforcement by administrative measures and its main purpose is to
check and deal with problems of violations of the law and regulations in
the object units, with more emphasis on the procedures of law
enforcement and the process in problem addressing. In our opinion, the
model of performance audit in our country should gradually shift
attention from the audit process to audit findings, with special attention
to the final audit goal and the utilization of audit outcome. Performance
audit is diversified in forms and the audit scope and methods may
sometimes be repetitive with those for financial audit on revenues and
expenditures. So long as the audit objective and outcome are not purely
for investigating and addressing violations, but for solving problems in a
better way through the recommendation of ways and means to do so,
this kind of audit will go beyond the scope of financial audit and should
be categorized as performance audit. In another word, the current
performance audit in our country is the in-depth development of
financial audit on revenues and expenditures and represents a higher
level in the development of audit and supervision.
c.
Our exploration should be on a model of performance audit that
unifies truthfulness, legality and effectiveness. In a considerably long
time to come, the solution of the problem of truthfulness and legality in
the financial area is still an important task for our audit work. On the
question of audit coverage and audit methods, performance audit will
still need to rely on truthfulness and legality to deal with problems. At
present, the administrative privilege of law enforcement entrusted with
the audit institutions should not be abandoned. From this point of view,
performance audit and financial audit on truthfulness and legality are
integral part to each other, with the latter as the basis and tool and the
former as the objective and outcome.
d.
Our exploration on the model of performance audit should stick to
the principle of serving the whole situation while giving special
attention to key issues with the exposure of problems as the starting
point. At present, there are still an abundance of problems in our
economic society related to the system, mechanism and management.
Some of the problems are fairly complicated in nature and that gives
performance audit a considerably big role to play. In conducting
performance audit, we should stick to the principle of taking the whole
situation into consideration while paying particular attention to key
issues, bear the overall interest in mind, work around the strategic goal
and central work of the Party committees and the government in an
effort to maximize the effect of performance audit. Centering around the
objective of “exposing problems, regulating management, promoting
reform, perfecting the rule of law, restricting powers and enhancing
efficiency”, we should make exposing problems the starting point in
performance audit, and by analyzing the cause and reasons of such
problems, put forward recommendations with a view to achieving the
goal of better regulations and higher efficiency.
e.
The model of performance audit in our exploration should take the
use of government funds as the principal subject and change the
style of audit from emphasizing the audited units to serving the
end-users (the government and the citizens). Performance audit
should be focused on government funds. It should examine and analyze
the effectiveness, efficiency and value on the use of such funds, make
suggestions with regard to issues related to the system, mechanism and
management, so as to serve the overall interest and make the system
more perfect. The traditional audit of financial revenues and
expenditures often takes the finding and addressing of violations in the
target units as its principal goal. Such kind of audit narrows the scope of
utilization of the audit outcome and does not bring the role of
macro-management into full play. Performance audit will change this
singular mode and will enable the audit institutions to do their work
centering more on the major question of concern to Party committees
and government and on those hot issues that affect the interest of the
people.
3. The basic structure of the model of performance audit in Zhejiang
Preliminary preconditions for performance audit are already present in Zhejiang
province. Current practice in Zhejiang’s audit work has shown that with performance
audit as the objective to unify the direction of our audit development we can break the
restraints of audit procedures and the audit concept based on audit of financial
revenues and expenditures, bring about a fundamental “procedure rebuilding” and
achieve a self breakthrough. From the point of audit innovation, with performance
audit as the objective to unify the direction of Zhejiang’s audit development, we can
guarantee to get to further depths in the audit with regard to special financial funds,
investments and economic accountability and provide a platform for easy operation in
streamlining audit resources and enhancing audit achievement.
(1) The objective of performance audit
The general objective of performance audit is to gradually cut down the
proportion of projects chosen for only financial audit in the whole annual audit
program, increase the number of special audit and investigations, constantly expand
the ratio of concurrent performance audit in the province and strive to make
performance audit account for half of the planned annual audit projects by the year
2007, thus finalizing the transformation of audit work from the stage with financial
audit as the main form to a stage where performance audit takes the leading role and
where the two kinds of audit patterns co-exist with each other and develop side by
side.
At the current stage, the demand placed on performance audit in our province is
to expose problems related to the system, mechanism and management that influence
the efficiency, effectiveness and outcome of our economic activities during a time of
orbit-changing in the system. First, on the question of power restraint and
supervision, we should push for the establishment of a mechanism of accountability,
paying particular attention to exposing and reporting problems caused by uncontrolled
power wielding, non-action or willful action that result in the inappropriate
distribution of public resources, poor management and low rate of utilization of such
resources. Second, on the question of administrative functions, emphasis should be
attached to disclosing problems such as high administrative cost, huge waste of
resources and low efficiency in management due to the flawed system and poorly
defined duties and responsibilities. Third, on the question of scientific development,
analysis and assessment should be made with regard to the deep-rooted problems
arising from the system’s defect and poor management which have produced negative
impact on the all-round, coordinated and sustainable development of our economic
society.
(2) Working task of performance audit
At present, we should take the current conditions as the starting point, streamline
and reorganize existing resources, choose the right breaking point and projects for
experiment, make a bold effort in our exploration and march forward step by step.
Performance audit in Zhejiang should take as its breaking point those projects that are
of general interest and government concern, that have great social impact and huge
financial investment, such as economic accountability, the use of special purpose
government funds and construction projects with governmental investment. By
making use of past audit findings and new trails discovered in the day-to-day
investigations, we should launch auditing by selecting those projects that are poor
managed, have incurred losses and wastes, and have a low rate of efficiency. In
addition to auditing their financial revenues and expenditures, an all-round
performance audit should be carried out on every single step in their economic
activities.
a.
Audit of special purpose government funds. In accordance with
the scientific outlook on development, performance audit should be
carried out on all hot and hard issues of social concern and on the use
of various special purpose funds that have a direct bearing on the
profound interest of the broad masses, such as funds for land
development, social security, fund for housing subsidies and for
poverty and disaster relief. At the same time, attention should be paid
to the implementation of policies and measures concerning the
management of financial budget, fund relocation and payment, funds
for public hygiene and environmental protection, and funds for
resettlement of the displaced etc. Violations of the lawful rights of the
masses should be severely punished. Recommendations should be
made for the perfection of relevant policies in order to provide audit
support to the establishment of a harmonious socialist society.
b.
Audit of construction projects with government investment. This
is the most direct breaking point for current performance audit as an
effective start. As the financial system and management of government
investment changes and with the gradual perfection of the system of
centralized payment by the state treasury, centralized accounting and
departmental budgeting, performance audit for government investment
should focus on questions related to the departmental budget submitted
by the leading construction department and the financial budget
approved by the financial department on the same level. Analysis
should be made with regard to the reasonableness and legal nature of
the fund allocation and approving process so as to find out if there
exists any “black-box operation” and if the construction funds have
been diverted for other purposes. In concrete project of investment
performance auditing, attention should be paid to the following four
areas: the investment decision making process, the use of the funds, the
management of the project and the value efficiency of the investment.
c.
Audit on economic accountability. An important point here is how
to improve the management of the units being audited so that
efficiency in the utilization of funds can be improved. Emphasis should
be placed on the use and value efficiency of major financial funds, the
exposure of problems, the promotion of reform and system perfection.
The purpose is to raise the fund management level by the local
government and departments and improve their efficiency. In this
connection, it is important to start working on the following four areas:
the internal control mechanism for financial revenues and expenditures,
the important criteria that reflects regional economic development
level, budgetary and financial management problems and the building
of a clean and honest government. By analyzing these factors,
assessment should be made to determine if the management, control
and supervision of financial revenues and expenditures are healthy, if
the decision-making process of major projects is appropriate and if the
state-owned assets have been effectively managed. With the rapid
growth of financial revenues in Zhejiang and the increase in
governmental funds, especially the special purpose extra-budget funds,
the scope of economic accountability audit of municipal and county
level leaders should be expanded. All government funds should be put
under the purview of audit supervision and the emphasis should be laid
on the management efficiency and the utilization of extra-budget
funds, on the implementation of measures related to the scientific
outlook on development and the establishment and perfection of the
public financial system, and use them as an important criteria in the
performance appraisal of city mayors and county level leaders.
d.
Audit in enterprises. Government performance audit originates from
the relationship of responsibilities entrusted to the government by the
public. As an audit on the use and management of public resources,
government performance audit does not in the general sense cover
performance audit of enterprises. In the audit of enterprises,
performance audit can also be carried out concerning their
management and use of public resources and the task in this regard is
pretty tough at the moment. Performance audit in enterprises can
expose financial losses resulting from tax evasion, and by way of
analyzing the reason behind it, can help elevate the scientific and
serious nature in tax collection and management.
4. Actively explore measures for the implementation of the model of
performance audit in Zhejiang
(1) Actively explore ways and means of performance audit
As far as ways and means of performance audit are concerned, due to the
differences in audit objectives and starting points, there is no fixed pattern of method
in performance audit, which should be based on the actual circumstances. The
commonly used method in financial audit is also applicable to performance audit.
Audit projects may be selected on an individual basis or at a trans-departmental level.
The emphasis of audit should be on the use and management of funds as well as on
the value efficiency of government investment. On the content of the audit, in
addition to checking up possible violations of the law, attention should be paid to
other economic problems such as the economical use of the funds, wastes and losses
etc. The major concern, however, is on the audit on performance efficiency and
effectiveness, which determines if management is appropriate and efficient, if project
objectives have been realized, and if there are errors in the decision making process.
At present, the following points warrant attention with regard to the form of
Zhejiang’s performance audit:
a.
Special purpose audit investigation is the principal form in
conducting performance audit. Special purpose audit investigation is
the most often used and most effective method in current performance
audit. It is procedurally simple and operationally flexible, with clearly
defined macro objectives, high degree of timing value, pinpoint
accuracy and well-established efficiency. With regard to outstanding
problems in macro management, it can put more emphasis on analysis
and research, formulate audit suggestions and play a more constructive
role in audit supervision. By comparison, special purpose audit
investigation is more compatible with the actual need of Zhejiang’s
audit work at the current stage. In the future, the proportion of special
purpose audit investigation should be raised in the practice of
performance audit so as to enable it to play a more active role in the
whole process.
b.
Performance audit can be conducted as individual project as well
in combination with the audit of financial revenues and
expenditures. Individual performance audit is an independent project
by itself that takes the assessment of project efficiency as its principal
objective. Performance audit in combination with the audit of financial
revenues and expenditures is a form of audit that is carried out
concurrently in a certain unit, with performance audit going side by
side with financial audit of the status of budget implementation,
economic accountability and etc. This kind of performance audit
should make it clear in the program that its objective is not only to
expose violations of the law and regulations but also to pay attention to
and analyze the performance-related problems. Performance analysis
and appraisal should be incorporated in the entire auditing process
embracing audit subjects, key points, steps to be taken and the content
of the audit reports.
c.
Follow-up audit is an effective way in conducting performance
audit on special purpose funds and construction projects.
Follow-up audit is a component part of pre-audit and concurrent audit.
It is characterized by features like earlier audit involvement, tracking
supervision in the whole process, speedy feed-backs and timely
correction of problems with an emphasis on practicing economy in the
use of government funds and regulating project management.
Follow-up audit of major special purpose funds and key construction
projects can encourage the audited units to discover and correct
problems in a timely manner, improve their work, regulate the use of
special purpose fund, ensure work is carried out in an orderly and
effective manner so as to achieve the best result for the projects. It is
therefore an effective form of the current performance audit.
d.
Computer audit is a crucial measure in raising the efficiency of
performance audit and in conducting systematic performance
analysis. An active effort should be made to explore audit method in
the computerized environment with a change from the accounting
books to electronic information data. By comparing and analyzing the
professional and financial data, using the method of systematic
thinking to grasp the entire inter relationship between different key
elements and then go on processing the acquired information, we can
bring into full play the advantage of computer audit in the analysis and
processing of information, probe into and reveal the inherent law that
gives rise to problems and lay a solid foundation for performance
auditing.
(2) Constant innovation of the form in the outcome of performance audit
An important objective in performance audit is to enhance the audit outcome, but
the forms concerning the outcome of performance audit that are suitable to our
province are not yet many. The generally adopted forms such as the comprehensive
audit reports, special audit reports and other information are an important
manifestation of the outcome of performance audit. Innovation in the forms of
performance audit outcome is still an essential task for all audit organs in our province
in the exploration of a Zhejiang model of performance audit.
Reports on performance audit are the most important manifestation of the audit
outcome. As far as the purpose is concerned, performance audit reports stress the
maximization of the effect of audit outcome, strive to enhanced the sense of
satisfaction of the end users, promote reform of the units under audit, speed up the
formulation of relevant laws and regulations and produce great influence on the
formulation and implementation of the overall policies and principles. Therefore,
from the very beginning of performance audit, auditors should have a strong sense to
maximize the effect of the audit outcome, put the need of end users in the first place
and try hard to raise the quality and level of the audit outcome.
It is necessary to note in this connection that audit institutions should solicit the
opinion from the audited units when the two sides dispute on problems in the audit
reports or when certain contents of the reports have a direct bearing on the economic
interest of the audited units. In submitting audit reports to the government or the
higher level of offices, every effort should be made to ensure the contents of the
reports are comprehensive and complete, objective and fair-minded so as to give the
end users a full picture of the situation and enable them to take the right decision
based on the audit conclusion.
It is also necessary to be clear that comprehensiveness and openness of audit
findings are an important manifestation of the outcome of performance audit. It is also
in keeping with the international norms and practices and has a special significance
with regard to performance audit.
(3) Continuously improve the internal mechanism of performance audit.
a. Consolidate and streamline resources and strengthen the work of
performance audit. The provincial audit office has called for an increase
in the ratio of concurrent performance audit projects and set a goal that by
2007 performance audit projects should account for half of the total annual
audit targets. Since performance audit calls for the input of greater
manpower and more material resources, audit institutions at all levels must
step up the work of streamlining and consolidating existing resources.
Cooperation and coordination must be strengthened among the functional
offices within the audit organs and also between the upper and lower levels
of audit institutions. Social and internal audit resources should be fully
mobilized to bring into full play their strong points in truthfulness and
legality audit, and due importance should be attached to the building of a
contingent of audit experts.
b. Strengthen management and carefully select projects for performance
audit. The accuracy and appropriateness in selecting projects for
performance audit and the scientific and rational nature in the strategic
planning of performance audit have a decisive role and influence on the
success of the whole practice of audit. On the selection of projects, focus
of attention should be placed on the performance audit of government
funds with the aim of raising the value of output against the input, and
audit should be carried out mainly on funds, departments and projects of
key importance. At the same time, the following specific principles should
be adhered to: (a) The principle of importance: Projects to be selected for
audit should be major construction projects, public facilities and special
purpose funds involving a considerable amount of investment. These
projects should be of great interest or concern to the local government and
people and have great influence on the economic and social development
and the environmental protection of the region concerned. (b) The
principle of timing: The selection of performance audit projects should be
in conformity with the overall situation of the social and economic
development. Comprehensive consideration should be devoted to the
selection process in close coordination with the prevailing social
environment and the principal policies and strategic planning of Party
committees and governments at all levels. (c) The principle of feasibility:
Attention should be paid that the selected projects for auditing are within
the bounds of the manpower and material resources of the audit authorities
and that a comparatively favorable audit environment is also present. (d)
The principle of value addition: Effort should be made to determine if the
selected projects have room for improvement, if the solution of their
problems is conducive to the steady and coordinated economic and social
development and if the material, cultural and health needs of the people
can be met. (e) The principle of similarity: It is necessary to find out if
the selected audit projects are to a certain extent similar with more other
projects (similar units, similar projects and similar funds etc). Similarity
study can provide a basis for efficiency comparison.
c. Strengthen the appraisal system and mobilize initiatives of all sides.
Audit institutions at all levels should pay attention to the continuous
perfection of the appraisal system and, by gradually raising the ratio of
performance audit in the process of evaluation and appraisal, bring into
full play the role of the “baton” of project assessment in promoting
performance audit and encourage the auditors to adopt an active attitude in
going for exploration and practice of the performance audit.
(4) Be bold in practice and make the system of performance audit
assessment criteria more and more perfect.
At present, the assessment criteria of Zhejiang’s performance audit should be
based on “the prevailing laws and regulations and the common understanding of the
people”, as put forward by Liu Jiayi, the Deputy Auditor-General. The prevailing
laws and regulations, the State’s major policies and principles, the professional
criteria and norms in various departments and trades, the generally acknowledged or
accepted standard and the professional judgment of auditors – all these should be
taken as essential elements in the performance audit assessment. By actively probing
into and practicing performance audit on a wider scale and through continuous
exploration and experiments, effort should be made to select, decide upon and
establish an assessment criteria compatible with the realities, which will in turn lead
to the gradual formation of a performance audit assessment system that is more
scientific, rational, systematic and perfect in nature.
Study Team of the Zhejiang Provincial Audit Office
on <Exploring the Model of Performance Audit
in Zhejiang>
Team leader:
Xie Liqun
Members: Wang Xiaolong, Wu Gaoping, Shi Songqing, Li
Xiulian, Fu Ying, Li Tianming
Principal reference documentation:
1. <Study on the Audit Theory>, compiled by Li Jinhua, China Audit Publishing
House, 2001
2. Speech by Li Jinhua at the “Forum on China’s Financial Laws”, “Audit Forum”
3. <Latest Performance Audit in Foreign Countries>, compiled by Xing Junfang &
Chen Hua, China Era Economy Publishing House, 2004
4. <Exploring the Chinese Model of VFM Audit>, compiled by Xing Junfang, China
Financial and Economic Publishing House, 2005
5. “Preliminary Thoughts on Performance Audit” by Liu Jiayi, Issue No. 6 of <Audit
Study>, 2004
6. “Comprehensive Summary of the Forum on VFM Audit” by Liu Yinglai, Issue
No. 6 of <Audit Study>, 2004
7. “Questions for Attention in the Study of VFM Audit” by Liu Liyun, website of the
National Audit Office, 2004
8. “Analysis on the Status of Government Performance Audit in our Country” by the
Shenyang Resident Audit Office, website of the National Audit Office, 2004
9. “Concept of Scientific Development and Government Performance Audit” by
Zeng Shenghong, Guangming Daily, 2004