INTRODUCTION OF THE DISSERTATION dissertation导论
The performance audit is a recent expansion in audit scope within these 30 years. Now it is one of the most important and flourishing areas for government audit work in China. The aim of this dissertation is to give a holistic and comparative review on the rising and development of performance audit in Western Countries and China, study the challenges faced by audit institutions in China, and give recommendations and suggestions to audit institutions in the development of performance audit from a scientific and development point of view.
This dissertation has five parts:
The first chapter will begin with the rising of performance audit in Western Countries and the definition coined by International Organization of Supreme Audit Institutions (hereinafter referred as INTOSAI). A comparison with performance evaluation or performance monitor will be made, and the relationship between performance audit and other forms of audit, such as financial audit, environmental audit and management audit will also be reviewed.
In the second part, it will give a holistic view of the performance audit in China National Audit Office (hereinafter referred as CNAO) and audit institutions at all other levels, from the rising of performance audit in China, to legal mandate, to the audit objects and areas which covered, to the audit focus of performance audit.
In the third chapter, the current status of performance audit in UK, USA, Canada and Sweden will be scanned. The legal mandate given, the audit areas covered, audit methods employed, the resource allocation will be reviewed and compared. The advanced experience in the performance audit area will be concluded.
Chapter 4 of this essay is an investigation of the challenges faced by government audit in China in performance auditing. The risks in political system and macroeconomic environment will be discussed. The interior flaws such as the lack of competences of auditors, the shortage of standard or guidelines will also be talked about.#p#分页标题#e#
In the last chapter, suggestions and recommendations in how to improve performance audit in the context of current China will be given from both 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 AUDIT 绩效审计介绍
The Rising of Performance Audit in Western Countries
As one of the oldest and venerable state functions, audit has a history of thousand years. However, the performance audit has risen and become a large scale and self-consciously distinct practice within the latest thirty years. It is a modern, challenging and fascinating form of audit, and is treated as a separate 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 public management reforms, which is so called ‘New Public 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 use 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 programs differed from one country to another, most of them highlights on: firstly, increasing the productivity of public services, i.e., raising efficiency; secondly, the convenience and preferences of its users; thirdly, the transparency of public services, which is assumed as a feature of democratic governance. Both singly and collectively, these new attributes considerably changed the ways in which public management system has been run in the past.
To adapt to the new system, the major priority of monitoring and control was shifted from the values of economy towards the value of efficiency and effectiveness and emphasized more on the monitoring and evaluation of outputs and outcomes. The auditors should not only stress 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.#p#分页标题#e#
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 Audit
This definition can be provided in many ways. It can be given by clarifying the distinction between performance audit and other related 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 widely accepted definition is the one coined by INTOSAI:
‘The full scope of government auditing includes regularity and performance audit’, and ‘Performance auditing is concerned 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 followed 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 intended impact’. (INTOSAI’s Auditing Standards, 1.0.38 and 1.0.40)
Within this definition, not only ‘three Es’, but also ‘sound administrative principles’, ‘good management’ are referred as criteria for judgment.
In the definition given by the Australian National Audit Office, ‘legislative and policy compliance’ is also been taken 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 program effectiveness, economy, and efficiency; internal control; compliance; and prospective analyses.
As described in the Performance audit manual of Office of Audit General 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 Audit#p#分页标题#e#
In 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 task of the performance audit is inspection 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 made 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 lower level of standardization in terms of both auditing 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 chosen is normally open and sometimes, formulated by auditors.
In spite of above mentioned differences, in audit practices, the line between these two types of audit is not always clear. For instance, the audit of a financial management system can be both a process in traditional audit and performance audit. Practical examples from some SAIs also show the same result.
Comparing Performance Audit with Performance Evaluation
Both performance evaluation and performance audit are viewed closely related as external forms of analysis and assessment of the programs or organizations.
Performance evaluation is a systematic study of how well 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 heading 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.#p#分页标题#e#
PERFORMANCE AUDIT IN CHINA 中国的绩效审计
History of Government Audit in China
The auditing supervision system in China can be traced 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 established with the function of performing audit duties and regarded as a rudimentary form of auditing in China.
In modern China, after the 59 years after the founding of People’s Republic of China, the audit work in China went through two different stages.
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 revenues 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 supervision 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 People’s Congress adopted 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 People’s 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 People’s Republic of China was formally promulgated in August 1994, which was an important milestone in the audit legal system building. An audit supervision system with Chinese characteristics was built up. Since the establishment of the audit institutions, 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 corresponding level governments and the audit institutions at their next higher levels, organize and manage the audit work within their jurisdiction. Their audit work is mainly under the direction 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 audit institutions in keeping with the principle that independence is an indispensable feature of a successful audit.’#p#分页标题#e#
Audit directly conducted by the CNAO covers the following areas: (Audit Law, Article 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 Premier;
Revenues and expenditures of the Central Bank, assets, liabilities, profits and losses of central monetary institutions;
Carrying out audit supervision over the financial revenues and expenditures of public institutions of the State and other public organizations using fiscal capital
Revenues and expenditures of central government owned enterprises and enterprises where state assets dominate or predominate;
Revenues and expenditures related to funds managed by relevant departments of the State Council;
Revenues 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 becoming steadily stronger.
The Rising of Performance Audit in China
Vigorously 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 people’s 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 resource
According to the statistics of IMF (World Economic Outlook 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 developments area, east provinces in China, GDP per capita has reached US$6000, which means 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.#p#分页标题#e#
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 key 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 short 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 overlapping 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 authority 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 transparent 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 energetic 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 China
The 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 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 century:
The 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 outcomes. 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 problems 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 are:
The 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 budget;
The 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 integrated 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)#p#分页标题#e#
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 details 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 reduced by 29.1 billion RMB Yuan.
CURRENT SITUATION OF PERFORMANCE AUDIT IN UK, USA, CANADA AND SWEDEN 英国、美国、加拿大和瑞典的绩效审计现状
With 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 UK
The 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 the 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 good 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 Office’s 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.#p#分页标题#e#
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 verified financial impacts of these reports amounted to £656 million, an increase 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 Comptroller 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 Government’s 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 USA
The 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.
After 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 its 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 to improve accountability by alerting policymakers and the public to emerging problems throughout government. Effective July 7, 2004, the GAO's 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 government for the benefit of the American people’.#p#分页标题#e#
Not like SAI in other countries, GAO is a legislative branch agency, so it is exempt from many laws that apply to the executive branch agencies. However, it generally 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 Improvement 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 seeking 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, applicable 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. GAO’s audit scope includes financial and management audits, evaluations of federal programs and performance, policy analyses, legal opinions, bid protest adjudications, and investigations.
In GAO, the performance audit and financial audit are separated distinctly. Among all the audit reports, 85% are classified as performance audit, while only 10-14% is categorized as financial audit. In fiscal year 2007, over 1200 reports and testimonies were issued for the supporting of the Congress’s oversight efforts. With this level of performance, GAO could achieve a return on investment for taxpayers of about $94 for every dollar of the used budget. It recorded $45.9 billion in financial benefits and 1,354 nonfinancial benefits, which helped improve government operations and better serve the public. (GAO, Performance and Accountability Report, 2007)
Performance Audit in Canada
The Office of the Auditor General of Canada, established in 1878, has a long history in providing independent and professional service to Parliament and Canadians. It audits the operations of federal government and provides independent opinions and assurance to the Parliament on the subject of the federal government’s management of public funds.
The office of Audit General of Canada was the first SAI which extended its scope to performance audit, combined which with financial audits, so called comprehensive audit. The Auditor General Act of 1977 provides the original legal basis for the Auditor General to carry out performance audits with due regards for the economy, efficiency and effectiveness. The Act was amended in 1995 to include responsibilities related to environmental matters. Performance audits do not question the merits of government policies. Rather, they examine the government’s management practices, controls, and reporting systems with a focus on results.
The Act requires the Auditor General to bring the following findings, not only in cases that accounts have not been unfaithfully or properly maintained for public funds, or the money expended other than the purpose for which it was appropriated by Parliament, but also in the cases that money has been expended without due regard to economy, efficiency, or environmental effects in the context of sustainable development. When scoping all performance audits, the cases listed above do not specifically define or limit the scope of performance audits, but indicate that they are of a nature that Parliament wants examined.
The Auditor General Act gives it considerable discretion to determine what areas of government to examine when performing such audits. Considering the huge amount of government activities, choosing topics for performance audits is a complex and challenging practice. Because choosing topics well is crucial to producing useful reports that are useful to Parliament, the Office puts considerable effort into this process.
The Office starts the audit planning process several years in advance. A thorough risk analysis is conducted to identify the areas that are of most significance and relevance to Parliament. Practical issues such as the availability of financial and human resources will also be taken into account.
In determining audit areas, the Office focuses on projects or programs in which federal organizations face the highest risk. Normally, high-risk areas are those that cost taxpayers considerable amounts of money or that could threaten the health and safety of Canadians if something goes wrong. The Office may also consider an area as significant if it has the potential for improving government results, or if it is of great interest to parliamentarians and Canadians. Besides, the request from the parliament will also be paid particular attention. However, the ultimate decision about what to audit rests with the Auditor General.#p#分页标题#e#
The Auditor General has no right on auditing topics that fall outside the Office’s mandate. As we mentioned above, all policy decisions which are the prerogative of Parliament and government and any areas under the exclusive jurisdiction of provincial or municipal governments fall into this category.
The Auditor General’s performance audit reports contain recommendations that can conduce to lasting and positive change in the way government functions. Follow-up audits may be conducted to determine whether the government has made satisfactory progress in implementing these recommendations and improving the government behavior. The results of follow-up audits are published in an annual Status Report.
The Office of the Auditor General of Canada conducts about 30 performance audits a year in federal departments and agencies. In the annual report of 2007, the topics such as sustainable development and the government's use of information for managing are of special importance in performance audit area.
The types of performance audit in Canada mainly are:
• Entity or program audits, which provide a substantive review of the whole or part of the operations of a department or agency;
• Government-wide audits, which focus on government-wide issues or functional areas;
• Sector audits, which focus on program areas delivered by a number of entities;
• audit notes, also called other audit observations, are an alternative mechanism for reporting matters of significance that come to our attention during the course of our work on any Office products. Audit notes usually report on a single subject which must be within the mandate of the Office; and
• Follow-up audits, which report on government actions in response to previous recommendations and issues of the Office. (Office of Canada Audit General, Performance Audit Manual, 2004, P23)
Performance Audit in Sweden
The Rikrevisionsverket(RRV) was established in 1961 and reorganized in 1992. It is the department administrating the government accounting and auditing. The audit scope covers state agencies and certain state owned enterprises, but not includes the parliament and associate bodies. RRV was divided into three departments, which are performance audit department, financial audit department and financial management and accounting department. In 1998, the financial management and accounting department was removed and a separate agency was established to perform this function.
Performance auditing in RRV has a long history which began to develop since the restructuration of RRV since 1967. At that time, the aim of performance study in Sweden is to give ‘a strategic policy role as a force for renewal in government administration’. The main role of RRV is to examine how government agencies reach the targets set by the central government. In the 1970s, there was a rising need for the broader and deeper analysis in performance audit under the wider context, and this need led to more extensive analyses. At the end of 1980s, the performance audit mandate was extended to the performance auditing of state owned companies and state maintained foundations. From the beginning of 1990s, the performance activity was shifted from management audit to effectiveness audit. (Christopher Pollitt et al, Performance or Compliance, P227 &232)#p#分页标题#e#
Empirical Conclusions from the Above Four Countries
From the review of performance audit development in the developed countries, the following conclusions which contribute for the flourishing development of performance audit can be made: the SAIs are independent from the governments; the explicit legal mandates are provided for performance audit; the auditors are well paid to keep the turnover low; the setting up of performance audit manual as instruction for the auditors; the audit result is released on a timely basis, not annual basis; the setting up of quality control system, etc.
CHALLENGES FACED BY THE CNAO IN 审计署所面临的挑战
Compared the performance audit in the CNAO with that of other SAIs, it shows that performance audit in China has a relevant short history and this new type of audit is facing challenges from both inside and outside of the audit institutions. The lack of independence from the government and explicit legal authority, the deficiency of transparence on public funds allocation and management, and the absence of an effective performance evaluation and accountability system are the critical social factors which influence the development of performance audit work. From the interior perspective the CNAO, the lack of performance audit management and regulation system and shortage of competent performance auditors are two major reasons accounting for the slow processing of performance audit in China.
Absence of Government Accountability
It is defined in the Lima Declaration endorsed by ISOSAI in 1977, the purpose of audit is that ’the concept and establishment of audit is inherent in public financial administration as the management of public funds represents a trust. Audit is not an end in itself but an indispensable part of a regulatory system whose aim is to reveal deviations from accepted standards and violations of the principles of legality, efficiency, effectiveness and economy of financial management early enough to make it possible to take corrective action in individual cases, to obtain compensation, or to take steps to prevent--or at least render more difficult--such breaches.’ Therefore, it is not hard to conclude that the ultimate purpose of audit is not to disclose the problems and reveal the causes of these problems, but to solve them. The following up of audit results is a procedure of great importance to achievement of economic and social benefit of the audit work.
The ‘audit storm’ in China started from 1996. Within the following 12 years, CNAO has delivered 12 Annual Auditing Report to the National People’s Congress. It was the first time in 2003 CNAO published its full version annual report to the public, and in this report, the names of the government departments in which problems are found during the performance auditing process. In the following successive years, more names were revealed to the society, the transparence of auditing work was enhanced. Lamentably, it was not hard to find the disappointing trend that with all these years’ hard work of CNAO, the list of audit findings was becoming longer and the result of follow-up procedures is not satisfying. Similar problems are repeated every year and some even getting worse.#p#分页标题#e#
The absence of accountability system is mainly responsible for this scene. The financial or performance malpractice covered in the audit report was not properly followed up and dealt with. Officials involved either got no punishment or just changed places while keeping their titles, some ever got promoted after.
In the Audit Law, it stated that only under the condition where an auditee violates the regulations of the State governing government and financial revenues and expenditure can the audit institution suggest that the persons directly in command and the other persons directly responsible should be given sanctions according to law. The situation of under performance is not involved, which made the effectiveness of performance audit findings weakened. The legal system for identifying who should be responsible for the poor performance is not set up.
Deficiency of Government Performance Appraisal System
Performance audits deliver a form of judgment base on criteria, which, logically, are central of the entire process of auditing. The scanning of performance audit criteria in Western countries shows that, generally, the criteria for the performance audit are referred as ‘3Es’ which is economy, efficiency and effectiveness. Sound management principles or good practices are often taken as general audit criteria in some cases. However, because the phenomena of the accounting information distortion is still prevalent, 3Es and good practices are not enough as criteria employed in the case of performance audit criteria in China, and compliances still should be an important factor in the performance audit process.
Another principal and very common obstacle for performance audit in China is that the government itself has not defined a clear and well-ordered set of objectives and/ or targets for the activity under scrutiny. One reason behind this is that China is a country with broad territory, the economic development level among each region is of great difference, and thus, it is hard to set up a national standard for the performance evaluation. Another one is to keep the objectives of a program vague and general so as to secure the maximum coalition of support. A survey of auditors suggested that the lack of outcome measures was a major constraint against the achievement of effectiveness auditing.
Besides, the development of economy is the most important or even the only performance measure standards for some local governments under the current performance management system. Thus, some local governments ignore another important index such as environmental protection, and this lead to a distortion of a government performance appraisal system.
Lack of Transparency in Public Administration
Chinese government is in the process of public administration reform, however, at current stage, it still shows ‘the lack of transparency in the public decision making process, especially in the process of funds distribution, funds usage and management, and the results and performance of public services.’ (Xuan Chen, Lessons from “Audit Storm” in China, 2005, P5)#p#分页标题#e#
In the process of funds distribution, neither the detailed annual draft budget nor an approved one will be published, so the taxpayers could not gain access to it, to review and make comment on it. On the process of funds usage and management, or the results of using the funds, timely information, in the form of periodic reports and statistics, is not available to the public, either.
The asymmetry of information makes the power of the public on monitoring. The outcome might be quite different if the administrators had known that information of why and how a particular decision was made and how much and for what purpose specific amounts of public money was to be spent had already been appropriately informed to and under the supervision of the public.
Shortage of Independence of Audit Institutions
Under current government audit system in China, the National Audit Office works under the leadership of the Premier of the State Council. The orientation of audit work is mainly to satisfy the need of government in public administration and macro economy regulation. Given its role in the administrative system, the audit office cannot be expected to solve problems even through what amounts to an alliance with internal supervision. Government is in a position to correct malpractice. Audit must fearlessly point errors out.
For local Audit institutions at various levels, the dual leadership system makes the independent situation worse. They are under the leadership of the governors of all correspondence levels as well as under the leadership of audit institutions at the next higher levels. They are mainly accountable and report on their work to the people's governments at the corresponding levels and to the audit institutions at the next higher levels. Their report to the local People’s Congress on behalf of the governments can only be made after approved by local governors.
What’s more, funds necessary for audit institutions is included in the budgets of the corresponding level of governments. The local governors also have the right of appointing and removing of leading persons of local audit institutions after consulting with the audit institutions at the next higher levels.
When conflicts of interest between the central and local governments happened, the current leadership system cannot guarantee the independence of audit reports.
Deficiency of Competent Auditors
The skills and expertise of our staff are the basis of the impact the audit institutions makes. Performance auditing is an information- based activity, with professional values occupying a central position. The roles of performance auditors are significantly different from that of traditional financial auditors. While the financial auditors are always regarded as a critic, the performance auditors are more treated as a coach or mentor. Their duty is not only to find out the low performance area, but more importantly, to locate the reasons behind this and provide suggestions on improvement. In the literature generated by some SAIs, at least four possible roles can be detected, and respectively are: a judge to give judgments or decisions; a public accountant to produce reports to enhance public accountability and transparency; a researcher for creating new knowledge and giving information; also a management consultant to give help and advice to public bodies. In addition, as performance audit projects are different from one to other, performance auditors will be faced with considerable variety and ambiguity in their work.#p#分页标题#e#
Generally, performance auditors are required of skills in accounting and financial auditing areas, analyzing activities and management activities. They need to become familiar with a wide range of public administration, organizational context and subject matters. Excellent communication skills both in oral and written are also required. They should well be educated in social sciences and in scientific investigation method. Special knowledge of the different functional areas to be audited, such as statistics, engineering and information technology, is also an essential.
In reality, the lack of competence of auditors is becoming the one of the bottlenecks for the massive carrying out of performance audit in China.
Lack of diversity in knowledge structure. As we discussed before, the purpose of performance audit is to recognize the defect in public management and find ways to improve the system. To accomplish this mission, performance auditors should not only be adequately trained in accountancy and financial management, but also expect to become proficient at economic analysis, social science, law, and even engineering. Disappointingly, a survey shows that 62.55% of auditors in China have background in accounting area, and only 13.13% have engineer background. Interdisciplinary talents are rarely found in all levels of audit institutions. The survey also showed that, only 24.71% auditors got the university degree, which is much lower than that percent in developed countries.
Lack of continuous education and training. Continuous education is a key measure in setting up a talent reservoir within an organization and also a value-added activity for improving the knowledge and skills in performance auditing area. In the Government Accountability Office of the US, performance auditors are required to maintain their professional competences through continuing professional education at least 80 hours, every two years. However, in China, the actual time for continuous education for each auditor is much lower than this level. The contents of the education and training are mainly focused on the basic theory of performance audit, which cannot the fill the gap between the requirement and the current status of the talents of auditors. The form of training also is undiversified.
Shortage of Standards or Guidelines in Performance Audit
SAIs with many years’ experience of performance auditing have their own standards or guidelines in the performance audit area. For example, in GAO of USA, field work standard about how to plan, implement, prepare report and document a performance audit is specified in GAO Yellow Book. The Office of Audit General published ‘Performance Audit Manual’ in 2004 for the purpose of continuously improvement in performance audit practices. The National Audit Office of United Kingdom published a list of good practices in performance audit. Based on these experiences, INTOSAI brought out ‘Standards and guidelines for performance auditing. These standards and guidelines are one of the key elements in audit quality control.#p#分页标题#e#
No doubt, establishing a standard or guideline will have positive impact on summarizing and communicating the good practices, standardizing audit methodology, improving the audit quality, enhancing professional ethic of auditors, and thus reduce the risk of the auditing process. CNAO promulgated in 1996 and amended in 2000 ‘Government Auditing Standard of People’s Republic of China’, but this standard is only applicable to financial and compliance audit. Audit institutions in China have performed performance audit for more than 15 years. Nevertheless, no guidelines or manuals have been promulgated in this area.
RECOMMENDATIONS AND SUGGESTIONS 建议和意见
The recent development in performance audit in China is a sign of good government governance and achievements of reform of the public administrative system. However, more needs to be done from the view of author to systematically improve the performance audit work in an effort of ensuring the public accountability in China.
Chinese government should put great efforts on reforming of the administrative system, which is an important link in deepening reform, an important part of the reform of political institutions. It should see to it that this reform proceeds in line with evolution of socialist democracy and the socialist market economy. It should adhere to the administrative accountability system and government performance appraisal system. It should strive to make government affairs more open by enhancing the government information release system and improving the various types of administrative systems for transparency in government affairs to increase the transparency of government functions and create environment to enable the people to oversee the government more effectively.
Building a Sound Performance Management System
Both performance measurement and performance appraisal are important concepts in the process of performance management under the context of new public management.
Outputs or performance orientation is one of the most important elements of the new public management concepts which risen from the Western countries form the middle of 1980s, and also one of the hot topics for Chinese government in the process of political reform and transforming the government functions in recent years. Requirements for outcomes-based performance management are increasing performance-evaluation activities at all government levels.
In the new public management reform, appraisals of public administration performance were concerned primarily with assessing the relationship of inputs to costs and the value of cost-reduction activities in these systems, adapting techniques from the larger field of management science. Performance audit is a key step and an important component of the government performance management system. It will provide performance evaluation and assurance on the performance outcomes of the governments, from a true and objective view. Performance reports and other products can have an impact upon the way the public sectors purse and implement their management roles.#p#分页标题#e#
In principle and practice, the developing of performance audit and the design and building of performance measurement system are interacting with each other. That means public performance management reforms could affect, or by affected by performance auditing, such mutual influence could operate in either direction or both. The widespread incidence of performance management change could affect the way SAIs conceive of and organize their performance audit work, vice versa, the performance audit results will have an impact on the way the public management reform designed and implemented. As Michael Power said, ‘auditing and the development of concepts of performance are mutually constitutive’.
Performance measurement is a logical prerequisite of performance appraisal. Chinese government is on the way of designing and building a complex and modern performance measurement system for the seeking of improving administrative oversight mechanism to use institutions to oversee the exercise of power. This performance measurement system should normally include the concepts and instruments like performance indicator systems, accrual cost accounting concepts, performance budgeting, performance monitoring and controlling, benchmarking, balance scorecard, quality assessment, and performance awards and competitions.
All these elements will make the originations subject to performance appraisal more auditable.
This reform proceeds in line with development of socialist democracy and the socialist market economy. The following issues are critical for a successful performance management system:
The Performance measurement system needs an adequate managerial infrastructure. The government should improve the division of responsibilities among government departments to ensure that all departments properly execute their functions. Efforts also should be focused on changing functions, straightening out inter-departmental relationships, improving the structure and raising efficiency the division of work among departments is appropriate. Modern management tools such as cost accounting, information technology and personnel management should be introduced to Chinese government;
The reform of the performance measurement system should be in aligning with the reform of budget system. An essential feature of the new budget system is that the budget is closely linked to the performance measurement. Only projects which have explicit performance objective and scientific management process can get access to the public funds.
The performance measurement design system should include the opinion of the organizations it concerned, the citizens or the customer of the public services, consultancy, academic institutions, and the employees.
Performance measurement results need publicity timely. They should be released on appropriate media to inform the public and other interest groups.#p#分页标题#e#
Empirical data also show that performance management is considered to be a major prerequisite for increasing effectiveness, transparency and accountability in public sector organization.
Improving Transparency in Public Administration
Increasing transparency is one of the major goals of administrative reform in China. It is of great importance regarding the efficiency, effectiveness, and the quality of public services, and the legitimacy and democratic decision making.
Normally, transparency can be viewed from two dimensions: on one side, communication between different actors. It is a matter of social relations, the power structure, and the trust among communicating actors. On another side, it is technical and instrument topic: how to make goals, targets and budgets clear and distinct. At current stage, the following two measures should be taken to improve the government information publicity:
Detailed budget of specific major allocations;
Timely publicity of audit reports and government activities statistics;
Setting Up an Effective Accountability System
Lack of an accountability system has resulted in similar problems repeated year after year. It is the pivotal time calling for an effective auditing accountability system. According to the characteristics and developing requirements of China’s governmental audit system, such measures should include: consummating the juristic responsibility system of audit, perfecting the personal responsibility system of audit, intensifying the juristic responsibility system of public budget and constituting the confederate responsibility system of the governmental audit should be taken to reinforce the effectiveness of audit.
Public accountability can also be strengthened in the process of performance management reform. Decisions must be made scientifically and democratically; the government must be run in accordance with the law.
Increasing Independence of Audit Institutions
Given its oversight role in the administrative system, the audit institutions cannot be expected to solve problems if it continues to act as an internal supervision system, since the funds and resources allocated to the audit institutions are controlled by central government and local governments at corresponding levels. The Empirical evidence of developing countries shows that: the NAO and Office of Audit General of Canada are totally independent from the government and the comptroller and audit general reports to the Parliament. Resources deployed by them are determined directly by Parliament. GAO is part of the legislative branch which reports to the Congress. After administrative reform, some SAIs that used to report to the government, such as Riksrevisonsverket in Sweden, are accountable for the Parliament directly.#p#分页标题#e#
In such an international context, some scholars in China suggest that state council should consider letting the audit department to be accountable to the People’s Congresses instead of the government itself.
However, the political system and current economic system in China make this suggestion less feasible:
Under current budget system, the oversight role of the People’s Congress on the budget management cannot not properly be carried out. The transforming of the function of people’s congress in the budgeting system is a prerequisite for the shifting of audit institutions.
The stated owned enterprises and state owned commercial banks still have great proportion in social economy. The supervision on these enterprises is a major task of government, which also one of the main audit scope of audit institutions.
Considering the above issues, it is suggested that ‘a dual audit system’, that is establishing two audit systems which separately accountable for the People’s Congress and the governments, maybe a good choice. The major task of audit institutions that report directly to the People’s Congress is supervising on the authorizing, implementation of budgets to insure the truthfulness and compliance and effectiveness of budge implementation. They should report directly to the People’s Congress; its resources are allocated by the People’s Congress.
The audit institutions that remained in the governments will still work as an ‘internal auditor’, and are mainly in charge of the audit of state owned enterprises which run under the governors' power.
Explore Performance Auditing Model in China
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 all in all 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.