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No. 26 of 2012 (General Serial No.110): Results of Audit Investigation on the Financial Funds of 54 Counties
2012-03-18日   Soure : :

From November 2011 to March 2012, the CNAO made an audit investigation on the financial situation of 54 Counties (cities, prefectures and Qis, hereinafter referred to as Counties) of 18 Provinces (autonomous regions, municipalities directly under the Central Government hereinafter referred as Provinces) (according to the status of their  good, average and undesirablefinancial situation respectively, these 54 counties are classified into three groups each making up for 1/3), focusing on the situation of financial guarantee. The results of audit investigation are announced as follows:

Ⅰ. Better results have been achieved in the provision of financial guaranteee by the counties 

The Central Committee of the Party and the State Council pay great attention to the financial situation and the guarantee of the people’s livelihood by the counties. In recent years, the relevant Central departments and local governments have actively taken measures to expand the scope of financial revenue of the local governments, energetically address their financial difficulties and meet their financial needs for “ensuring wages, regular operation and people’s livelihood. This has brought about a continued growth of the counties’ financial revenue and the steady enhancement of their financial guaranteee capabilities.

1) The revenue of local governments has steadily grown.

The counties under audit investigation have taken active measures to develop the economy and enhance the capabilities of increasing financial revenue. Audit investigation on the financial reports of 54 counties (including revenue and expenditure of public finance, governmental funds, business of state capital and those beyond the budget), the governmental revenue of the counties finance in 2011 reached 1,116.84 billion Yuan, an increase of 16.46% over 2010. Of these, the revenue of public finance stood at 57.965 billion Yuan, an increase of 16.67% year-on-year.

2) The financial support of higher authorities has become increasingly stronger.

In 2010, the 18 provincial and county finances received 1,600,836 trillion Yuan in transfer payment funds from the higher authorities, on 1.25 times of their public financial revenue in the same year. After receiving the transfer payment funds the 18 provincial and county public finance revenue reached 32,315.52 billion Yuan, making up for 58.45% of the 18 provinces’ financial revenue, or 35% higher than before they received the transfer payment finds. After receiving the transfer payment funds, the county-level per capita public financial revenue calculated in terms of population of the 54 counties being focused for investigation stood at 38,73 million Yuan, an increase more than two fold before they received the transfer payment funds.

3) The counties’ financial pressure has gradually been relieved.

On the basis of a number of measures taken by the Central finance in 2011 for “giving rewards in 3 circumstances and awarding subsidies” and subsidizing major grain-producing counties, the Central finance put in place awarding and subsidizing mechanism for ensuring basic financial capabilities at the county level. It issued 156.968 billion Yuan of various awarding and subsidizing funds to relieve the difficulties of the counties and townships, or 3.62 fold than in 2005. 18 provinces also worked out programs and working plans for ensuring and making up for the shortfalls of preliminary public services in counties of their localities. In addition to the awarding and subsidizing funds of the Central finance, another 43.711 billion Yuan has been earmarked for setting up the safeguard mechanism of the basic financial capabilities at the county-level. The difficulties encountered by the counties in “ensuring wages and regular operation” has been largely resolved, while the capability of “ensuring the people’s livelihood” has also been enhanced, According to the standard overall estimation of the Finance Ministry, in 2011 there were no shortfalls of basic financial guaranteees in 3 provinces and counties. Compared with 2010, the shortfalls of basic financial guaranteees in 15 provinces have been reduced by 161 items with the reduction of the shortfalls standing at 10.263 billion Yuan in dimension.

Ⅱ.Major Problems Identified by the Audit and their Rectification

1)  Structure of the county-level financial revenue is not quite rational.

Now the tax source of the exclusive tax kind (like tax paid by the buyer of a real estate) belonging to county-level governments is relatively widespread, and the non-tax ration in the county-level financial revenue runs high. In 2011, of the financial revenue in 54 counties, the non-tax revenue makes up for 60.45%. Therefore, the non-tax revenue is 20.90% higher than the tax revenue.

2)  A number of counties reduced or exempted the financial revenue in disguised forms in attracting investments.

In the course of attracting investments, some counties returned the taxes paid by enterprises and the rental revenue of land through financial listing of expenditures to relevant enterprises, thus reducing the disposable financial capabilities of the counties. Of the 54 counties under audit investigation, 53 counties from 2008 to 2011 came up with 221 documents giving preferential treatments regarding investment attraction that run counter to State policy. The counties involved correspondingly reduced 7.043 billion Yuan of financial revenue in the form of financial expenditures, revenue that should have been handed over. Of these, the 2011 exemption in disguised forms reached 3.336 billion Yuan, an equivalent of 5.81% of the general budget revenue of the same year.

3)  Part of the financial expenditure at the county-level is under certain pressure.

At present, due to lack of relevant legal regimes to regulate the authority and expenditure responsibilities of governments at various levels, there have emerged cases of governments of higher authorities relegating authorities, and the expenditure responsibilities of county-level governments becoming steadily heavier which is not in keeping with their own financial rights. An analysis of the 2010 expenditure structures of the 54 counties shows that the expenditure to meet the growth requirements of the legal expenditure as initiated by the relevant Central Departments concerning policy arrangements for meeting certain targets and increasing expenditure constituted 77.23% of their public financial expenditure of the same year. The finance left to the independent arrangement of the county-level governments is relatively insignificant (as shown in Note 1 below). Therefore, parts of the financial expenditure of the county-level governments are under considerable pressure. A comparison between China’s eastern and central western parts shows of the 54 counties, 45 of the above ratio in the central western counties is 81%, which is about 11% higher than 9 eastern counties.

(Note 1 -- A comparison between the expenditure in relation to policy for meeting certain targets and the expenditure of public finance: 119.734 billion Yuan of public financial expenditure; Of which, expenditure in relation to policy for meeting targets was 92.203 billion Yuan, making up for 77.25%)

4)  County-level finance is highly dependent on the transfer payment of higher authorities.

In 2011, 49.39% of the public financial expenditure of the 54 counties came from transfer payment of higher authorities, and the percentage of the 45 counties in the central western parts was 61.66%. As there was a high percentage in the funds with designated purposes of the above transfer payments, local governments were not in a position to make overall arrangements of these funds. Of the 73.818 billion Yuan of the transfer payments the 54 counties received in 2011, 50.78% were transfer payments for specified items , with the general transfer payment including funds with designated purposes added, constituting 68.4% of the transfer payments which had specified purposes (as shown in Note 2 below)

(Note 2 -- Structure of the financial transfer payments 54 counties received:

l        General transfer payments with designated purpose were 13,007 billion Yuan

l        General transfer payments were 36,335 billion Yuan, or 49.22 %

l        Transfer payments from higher authorities with designated purposes were 50.49 billion Yuan, or 68.40 %.

l        Transfer payments for special items were 37,483 billion Yuan, or 50.78 %

The investigation further shows that due to the delayed issuance of the transfer payments for specified items and inadequate preparations for these items, as of the end of 2011, 43 counties transferred to the following year the transfer payments for specified items amounting to 10,627 billion Yuan, or 35.92 % of the total volume of the transfer payments for specified items received in the same year. This has had an adverse effect on the implementation of the budget and the pro-active financial policy.

5)  The county-level's financial management is not up to standard.

First, their financial reports did not reflect the actual situation of revenue and expenditure accurately. In 2011, 8,329 billion Yuan of the non-tax revenue of the 54 counties were not treated as financial revenue as required by regulations but directly offset expenditure with revenue, or were on the record in the account under "cash for temporarily deposit" or delayed special financial account. The 3,313 billion Yuan revenue as shown in the financial report actually had no source of revenue. It had been realized through paying taxes in the form of listing revenue and expenditure, by falsely listing revenue for land rentals or financial borrowing. 4.450 billion Yuan of financial expenditure already paid had not been listed as expenditure, but were on the record in the account under "cash temporarily paid". The 6.656 billion Yuan expenditure as shown in the financial report was non-existent in that year. The above expenditure was examined and calculated under the item of "temporarily deposited cash" following the approval of final account listing, or transferred the financial funds into special account of financial expenditure.

Second, the management of funds beyond financial revenue is not up to standard. None of the 54 counties has formulated regimes on regulations for the distribution and management of funds beyond financial revenue. In fact, 7 counties did not report to the County People's Congress for record or planned to seek approvals when actual arrangements were finalized. As far as the use of those funds is concerned, 31 counties at the end of 2011 made arrangements for those funds amounting to 2.461 billion Yuan to become expenditures of the same year by means of supplementing the budget, while a substantial amount of funds was carried over to the following year. 14 counties used the 561 million Yuan of those funds for supplementing revenues and expenditures for subsidies allowances of governmental departments.

Third, the advancement of departmental budget and the regime for the State coffer to receive and pay in a centralized form has not been put in place. As of the end of 2011, 6 of the 54 counties under the audit investigation have yet to initiate departmental budget reforms, and 7 counties have yet to introduce the system of the State coffer to receive and pay in a centralized way. There is a room for improvement for counties that have already undertaken the above two reforms. In 2011, of the general budget expenditure of the 48 counties at the beginning of the year where the departmental budget management had been introduced, 14.597 billion Yuan (about 21%) had been compiled by the financial departments instead of the specific departments and units. Of the financial expenditure of the 47 counties where centralized payment by the State coffer had been introduced, but 87,452 billion Yuan (about 58%) was not included in centralized payment , on the contrary , the fund had been transferred to the accounts of the budget units in the commercial banks.

Following the conclusion of the audit investigation, the CNAO issued an audit investigation report making audit decisions on issues of violating relevant regulations. The localities concerned set much store by the problems discovered in the audit investigation and stepped up their efforts to rectify them in an earnest manner. With regard to the problem of irrational structure of the financial revenue at the county level, the considerable amount of pressure of payment they are under and their heavy dependency on the transfer payments from higher authorities, measures are being taken in conjunction with the reform of the financial regulation system below the provincial level to boost the coordinated development of the county-level and regional economies. Efforts are being made to gradually foster regional, especially county-level principal tax kinds in order to beef up the county-level financial capabilities, while at the same time readjusting and optimizing the structure of the transfer payment, further intensifying the balanced transfer payment and gradually advancing equality in provision of basic public service. As regards the problem of unsatisfactory progress in reforming the county-level financial regulation system, the Finance Ministry and the localities concerned are taking measures to push on the reform of county-level departmental budget and the system of centralized receiving and paying by the State coffer. In compliance with the requirement in the "Circular Issued through the General Office of the State Council Concerning Recommendations of the Ministry of Finance on Further Strengthening the Regulation of Special Financial Units", efforts are being reinforced for clearance of the special units. As regards illegal formulation of preferential policies in attracting investment, the State Council has urged the National Development and Reform Commission to work out a standardized document.

The clues to the 13 cases of suspected violation of discipline and economic crimes discovered through the audit investigation (involving 29 people including 4 division-level public servants) have been handed over to relevant departments for investigation and prosecution

Annex: List of provinces, prefectures, cities of the audit investigation and counties audited at random

Hebei Province: Nanhe County, Quzhou County, Botou County

Shanxi Province: Shanyin County, Dingxiang County, Tianzhen County

Inner Mongolia Autonomous Region: Ningcheng County, Chahaer Youyihouqi, Wuyuan County

Jilin Province: Yanji City, Jiutai City, Daan City

Jiangsu Province: Siyang County, Lishui County, Jiangyin County,

Zhejiang Province (Ningbo City is not included): Shaoxing County, Jiangshan City,                                         Wencheng County,

Jiangxi Province: Fengcheng City, Duchang County, Xunwu County

Henan Province: Yanling County, Lankao County, Fanxian County

Hubei Province: Yidu City, Luo tian County, Gong an County

Hunan Province: Liuyang City, Yizhang County, Xiangyin County

Guangdong Province (Shenzhen City is not included): Lianzhou City, Huaiji County,                Fengshun County


Guangxi Zhuang Autonomous Region: Wuming County, Bobai County, Tiandong County


Chongqing Municipality: Peiling District, Rongchang County, Yunyang County

Sichuan Province: Pengshan County, Jintang County, Fushun County

Guizhou Province: Panxian County, Xiuwen County, Shiqian County

Yunnan Province: Xinping Autonomous Region of the Yi and Tai Nationalities,                           Menghai County, Yunxian County

Shaanxi Province: Fuping County, Luonan County, Chunhua County

Gansu Province: Taian County, Longxi County, Linxia County