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Beijing concerned with accounting fraud
Epoch Times
9/27/2003



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The Chinese National Auditorís Office found serious accounting problems with the 2002 financial statements from the State Department and its subsidiaries. Auditors found the number of transactions understated, revenue concealed, and secret, unreported accounts set up to conceal stolen funds. Some agencies even fabricated projects to swindle money. The total value of unreported funds is in the tens of billions of yuan.

A 21 Century Economy report quoted an unnamed official from the National Auditorís Office as saying there are four serious problems with the Central Governmentís account management system.

First, the central government agencies lack a regulated system for recording budgets. Among the 60 agencies that were audited, 23 did not itemize their budgets or had incomplete budgets. Six didnít have an approved budget by the beginning of the fiscal year. Twelve moved funds across different categories without approval from higher agencies.

Second, the central government agencies lacked sufficient management control over their subsidiaries. For the 200-plus subsidiaries, concealed income and secret accounts amounted to 3.7 billion yuan, including 229 million of illegitimate funds found in the National Weather Service and its subsidiaries. The former Information Research Institute of the Water Resource Department fabricated a building rehabilitation project, made up false project budgets and construction contracts, thus swindling 1.35 million yuan from the national government. The money was used to provide additional benefits for the staff.

Third, revenues and expenses were not clearly reported. Fourteen agencies set up unapproved projects or overcharged for projects, illegally pocketing 522 million yuan. Fifteen agencies failed to submit 331 million yuan of general revenue to the national government. Twenty-nine agencies failed to submit 1.9 billion yuan of special project revenue. Twenty-six agencies concealed or moved 268 million yuan from their accounts; some even set up secret accounts.

Fourth, the final report contained fraudulent figures. Twenty-five agencies did not disclose the full amount of their revenues and expenses and understated their assets, for a total underreporting of 4.1 billion yuan.

In addition, excess fund balances are also not well managed. Many agencies have been merged or even eliminated under reorganization, but the fund allocation budget was not adjusted correspondingly. For example, despite reforms which separate colleges and universities from the national government, appropriations for colleges and universities are still partially controlled by national agencies. These funds, some of which are as large as ten billion yuan, were supposed to be returned to the Department of Revenue. However, some agencies misused these funds, turned them into agency slush funds, invested them into other projects, or disbursed them to employees as extra benefits.

Although the number of staff persons at government agencies has reduced significantly after several rounds of reorganization, the audit showed that the usage of agency cars actually increased during the same period of time.

The National Auditorís Office has formed a 200-person investigative team to audit all central government agencies. The Auditorís Office stated that all government financial reports, except for national and trade secrets, will become available to the public in 2006.

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