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No. 1, 2008 (Serial No. 25): Rectification results of the problems found in auditing the implementation of the 2006 Central budget and other financial
2008-07-04日   Soure : :

Rectification results of the problems found in auditing the implementation of the 2006 Central budget and other financial revenues and expenditures 

(Announced on January 28, 2008)

The 28th session of the 10th Standing Committee of the National People’s Congress(NPC) reviewed the audit working report submitted by Auditor General Li Jinhua, who was entrusted by the State Council, on the implementation of the 2006 Central budget and other financial revenues and expenditures., and it demanded the State Council to instruct departments concerned to strictly look into the accountability for the problems found by the CNAO, make a careful analysis of the causes arising from the systems and mechanism, take practical steps for rectification, and report to the NPC Standing Committee on the status of the problems and their outcome. The State Council attached utmost importance to this work. Premier Wen Jiabao called a State Council standing conference to discuss and arrange rectification of the problems found by the CNAO regarding the 2006 central budget implementation. The Premier requested that the rectification should focus on the system build-up and perfection of establishment and mechanisms, and stopped the illicit activities in budgetary implementation at the sources. Thereafter, the departments and units under the State Council started to get down to the business in a conscientious manner in accordance with the resolution of the NPC Standing Committee and the requests of the State Council standing conference. As of the end of October 2007,  the amount of 4.195 billion yuan misappropriated has been retrieved and returned by all the audited units; relevant departments and audited units have improved 305 rules and systems in accordance with audit suggestions. Furthermore, about 117 cases suspected of criminal offenses had been handed over to the relevant responsible departments, Central Commission for Discipline Inspection of the CPC, procuratorate and judicial organs, with 104 persons punished, 88 arrested, sued or sentenced according to laws. Now, the way the problems found by the CNAO were addressed is published as follows:

I.     Rectifications of the problems unveiled in the implementation of the Central budget organized by the Ministry of Finance

1.    As regards the project funding amounting to 17.422 billion yuan arranged in the budgets of previous years and left unused as a longtime non-cleared balance on account by the Ministry of Finance as of the end of 2006, the MOF had re-arranged the above financial resources by committing 800 million yuan to the subsidies for farm machinery purchases and the other 16.622 billion yuan on the policy-based the grain payments charged in accounts.

2.    As regards the excessive supplements made to the annual central budgets allocated to department budgets and the failure to break down the departmental budgets to their affiliated units and projects in MOF’s replies to the departmental budgetary applications at the beginning of the year, the MOF had taken three steps to bring the supplementary allocations under control: first, the budgetary proposals had to  be made as accurate and complete as possible, so as to avoid any omissions or under-applications; second, apart from financially securing the new policies or new projects devised by the CPC Central Committee and the State Council, the MOF had taken a close look at those supplements of ordinary nature filed by the central government departments before approval so as to cut back on the supplements; third, the MOF had tightened the procedures for the supplement expenditures, standardized their management. Any major items entailing major supplements made to the central finance had to be reported to the State Council for approval, and those non-major expenditure items had to be reported to the State Council for record at the year-end. In order to further itemize the budget, the MOF had added the mandatory budgetary itemization management in its relevant rules, namely, the department concerned had to do its best in the budgetary itemization both in its budgetary preparation at the beginning of the year and in the item rearrangement during the annual budgetary implementation, and the MOF had tightened its control of the budgetary examination and approval so as to minimize the arbitrary allocation of financial resources.

3.    As regards the arrangement of 45 million yuan for the People’s Bank and the MOF as business expenditure for issuing of the public debt in addition to the departmental budgets, the MOF will cut in half the sum of the business expenses it collects for certificate public debt issuance as of 2008, and all the expenditures will be accounted in the departmental budgets.

4.    As regards the 4.536 billion yuan of budgetary revenue that should have been collected, 1.611 billion yuan in interest earning recovered from special deposit accounts resulting from the debt-turned-loans had been submitted to the treasury. As for the solution to the 2.919 billion yuan of profit owed to the central finance by the 14 central foreign trade enterprises before 1999, the MOF will consult with the State-owned Asset Supervision & Administration Commission and the Ministry of Commerce and submit a formal report to the State Council. When it came to the dividend earning derived from the stock right by the State Rural Development Office from its investment in the shares of the industry-based operated projects as of the end of 2005 totaling 5.9911 million yuan, the MOF had formulated the Rules Governing the Collection of the State-owned Stock Right Dividend Earnings by the State Rural Development Investments, according to which the stock right will be collected.

5.    As regards the failure to involve the revenues and expenditures derived from the central government accumulated lottery-based public benefit fund into the budgetary management, the MOF has began to include this part of the revenues in the budget of the governmental fund starting from 2008, and managed it as special-item spending on social public-benefit undertakings as prescribed by the state. 

6.    As regards the failure to involve the project expenses using the 2006 foreign debt (737 million yuan) debited and repaid by the central finance and the year-end balance of 49.313 billion yuan from debt service reserve intended for the international financial organizations into the budget, the MOF is trying to explore the methods to solve the problem, and will do its best to involve them into the budget within three years in accordance with the relevant regulations of governmental revenue and expenditure items.

7.    As for the low execution rate of the interest discount fund budget for small-profit lending to the people who lost their jobs, In combination with the enforcement of the Law of the People’s Republic of China on Promotion of Employment, the MOF will enhance its coordination with the departments concerned, consummate relevant systems, shorten the time of examination and approval, simplify its allocation procedures, and set up and improve the mechanisms of risk compensation for security fund for small secured loans and the shared risk mechanisms for small secured loans so as to kindle the enthusiasm of financial institutions and local financial departments for giving out small secured loans, and increase the proportion of use of such interest discount fund.

8.    In conjunction with the approach of using the employees’ salaries based on the basic pays plus performance as deductions from the income taxes on the part of six financial and insurance enterprises (thereby reducing the income tax payment)approved by the MOF and the State Administration of Taxation, the MOF will regulate the specific scope and standard for pre-tax deductions in accordance with the relevant provisions of the Law of the People’s Republic of China on Income Taxation of Enterprises as well as the rules for its implementation.

II.  Rectifications of the problems found by the CNAO in transfer payments funds of the central government

With regard to the problems found by the CNAO, the MOF is engaged in regulating the management of special-purpose transfer payment funds.

1.    To clear and integrate the setting of special-purpose transfer payment projects. Firstly, the MOF should strictly control over new projects. Besides the special-purpose transfer payment projects that can be set up directly as requested by the state laws and statues and the documents of the CPC Central Committee and the State Council, other similar projects requested by the central government departments and commissions as well as the local governments should be brought under strict control. Those that are indispensable should be approved by the State Council. Secondly, to take stock of the existing special-purpose transfer payment projects, and divide them into the following four categories: projects to be abolished, projects to be consolidated, projects that have fixed amount of money and projects to be retained, so that they can be dealt with respectively. As regards those projects already overdue, one-off projects and those that have outlived their usefulness, they should be abolished. As for those projects that serve the same purpose and may be consolidated, they should be consolidated. In connection with those projects with fixed annual amount of funding and are intended for provinces (autonomous regions and municipalities), the fixed amount projects should be readjusted to be included in the financial transfer payment. As for those projects that meet the needs of emerging situation, they should remain unchanged.

2.    To increase the transparency of management of special-purpose transfer payment. The setting up, examination and approval as well as allocation of each special-purpose transfer payment item call for clear rationale for allocation and operational procedure. It should be managed in accordance with rules, and any arbitrary action is to be avoided. At the same time, with the exception of those projects that need to be kept confidential ,each and every project needs to be made public in a timely manner in terms of its funding management procedure,

3.    To explore a new management mode for transfer payment. The factor analysis, formula type approach and using award to replace compensation need to be adopted as often as possible in allocating funding so as to kindle the enthusiasm of localities. Likewise, study should be made on the improvement of the budgetary plan flow chart for special-purpose transfer payment in order to formulate draft budgets in advance. The localities should be asked to involve into their governmental budgets for expenditures the projects having fixed amount of transfer payment, and to pursue a complete draft budget. Ongoing effort should be sustained to select those projects that fulfill the requirements for government procurement and the centralized payment by the treasury so as to gradually elevate the efficiency of funding. Study should also be made to put in place a performance evaluation mechanism for the transfer payment funding, so as to monitor the track of funding and its cost-effectiveness. Effort should be made to build a transfer payment information feedback system in order to closely watch the dynamic movement of such payment.

III.             Rectifications of the problems found by the CNAO in the allocation of the central government investments by the National Development and Reform Commission ( NDRC)

1.    As regards the additional 35.1% increase of the estimated additional cost of the Yichang-Wanzhou Railway project already determined by the State Council, the NDRC had reported to the State Council on the way the project cost estimate was approved.

2.    In connection with the investment plans handed down to four projects whose feasibility studies were to be approved by the higher authorities and three projects whose primary designs were still pending, the NDRC has approved the four projects’ feasibility studies, and will improve its preliminary work for construction projects, and standardize its procedures for handing down investment plans.

3.    As for the failure to abide by the principle of separating government function from enterprise when it comes to the management of state petrol reserve bases and failure to report to the State Council for  approval of its unauthorized readjustment of total investment, the NDRC will, in the light of its effort to draft the State Rules for Petrol Reserve, further research and document the petrol reserve and management modalities in China, and will strengthen its supervision and management of projects pursuant to the project management models authorized by the State Council. As for the readjustment of the total investment, the NDRC has reported to the State Council and got its approval.

IV.              Rectifications of the problems found by the CNAO in implementing budgets by the central government departments and commissions

The audit had found that 56 departments and commissions of central government level had problems relating to 34.853 billion yuan, with the exception of the problems relating to 19.003 billion yuan involving non-itemized, incomplete budgets and budgets whose approvals came untimely that need to be gradually solved in the context of financial reform and the budgetary arrangement taking place in the second half of the year, the remaining problems relating to 15.134 billion yuan had already been solved and rectified through reform measures, which accounted for 95.5% of the total amount. They were as follows:

1.    As regards the over-reporting and over-obtaining 84.892 million yuan of financial funds by the State Environmental Protection Administration, State Tobacco Monopoly Administration and General Administration of Civil Aviation, the problems had been solved by the methods such as cutting back on their respective budgetary expenses, improving budgetary submissions for approval and examination. As for the overlapping submissions of projects relating to the nation-wide soil environment quality survey and evaluation for the purpose of coming by financial funds, the SEPA had consulted with the Ministry of Land and Resources and agreed on the cut-back of 7212 spots or locations for soil sampling, thereby reducing the budgetary expenses amounting to 29.92 million yuan.

2.    In conjunction with the misappropriation and diversion of financial resources and other special-purpose funds to the amount of 859 million yuan by 33 departments including the South to North Water Diversion Office and the General Administration of Customs, 779 million yuan or 90.7% of the total had been corrected by means of item readjustments, return of money to the original channels, going through procedures long overdue etc. The other problems are being corrected by the departments concerned.

3.    As for the illicit retention, under-reporting and shifting financial resources totaling 394 million yuan by 15 departments including the all China Federation of Supply and Marketing Cooperatives and the General Administration of Press and Publication, those problems involving 262 million yuan, or 66.5% of the total amount had been tackled by submitting the money to the treasury, account book readjustment and involve into the unified accounting management of departments concerned. The remaining problem with the Supply and Marketing Cooperative involving 131 million yuan of annual financial resources from the previous year that should have been submitted by the SMC to the treasury after the liquidation of the China Cotton Reserve Management Center is being discussed by the SMC with relevant department for a final solution.

4.    With reference to the 12 departments and units including the Ministry of Health and the State Information Center that collected fees against rules and lax management of non-tax earnings, they had applied to the Ministry of Finance for opening special financial accounts, gone through the approval formalities long overdue and solved the problems relating to 137 million yuan, or 74.1%. As for the remaining problems, the departments concerned are loosing no time in addressing them.

5.    With regard to the lack of budgetary breakdowns, incompleteness and untimely budget approval on the part of the 19 departments including the State Tobacco Monopoly and Administration and the Ministry of Education, such problems will be resolved gradually in the context of financial reform. Those departments concerned have expressed their determination to take a more scientific approach to the formulation of their budgets, toughen the discipline for budgetary implementation, enhance project management, perfect the budgetary procedures and have a better cost-effectiveness of financial inputs.

At the same time, there are some problems concerning financial funds amounting to 12.027 billion yuan in the undertakings affiliated to the central government departments have been found by the CNAO, while 10.802 billion yuan or 89.8% had been solved and corrected. The main problems were as follows:

1.     In connection with the nine units affiliated to the six departments including the Ministry of Railways and the State Administration of Radio, Film and Television that had speculative access to the financial resources amounting to 14.0454 million yuan, 12.1174 million yuan or 86.3% had been addressed by handing over the money to the finance or other means. And the departments concerned are serious about the setting up of performance evaluation systems for major project expenses.

2.    As regards 92 units affiliated to the 25 departments including the NDRC and the Ministry of Culture involved in diverting financial resources and other special-purpose funding amounting to 2.754 billion yuan, steps had been taken for the return of money to their original sources, accounting item readjustments, setting the financial resources straight, and the amount of money involved totaled 2.594 billion yuan, or 94.2%. The remaining 160 million yuan are being tackled by the NDRC and the Ministry of Culture.

3.    As for the transfer the amount of 591 million yuan on the part of the 33 units affiliated to the 23 departments including China Electricity Regulatory Commission and the Ministry of Labor and Social Security, 578 million yuan or 97.8% had been set straight by involving the funds in the statutory account books. With regard to the problems to be solved, the departments concerned are looking into the matters. The 175 million yuan intended for overseas investment and public service fund of the Electricity Regulatory Commission-affiliated Asset Management Center of the China Electricity Council had been included in the unified accounting on request, and the Council had cancelled the bank account opened with the null and void seal. The earnings held back through such an account and expenses had been incorporated in the 2006 final account.

4.    As for the lax management of investment, substandard system transitions, underestimation of state assets and equities on the part of the 50 units affiliated to the 13 departments including the Chinese Academy of Sciences and the Ministry of Water Resources, the entities concerned had taken methods as making supplementary registry of share equity and improvement of rules and regulations, which had made for the settlement of problem fund amounting to 2.078 billion yuan, or 91%. Other problems are being addressed in a conscientious manner.

5.    In connection with the illicit fee collection or failure to strictly observe the rules on non-tax revenue management on the part of the 16 units affiliated to the 11 departments including the Ministry of Agriculture and the State-owned Assets Supervision and Administration Commission, measures had been taken to go through the approval formalities long overdue, manage the money in accordance with the model of “separation of revenues from expenditures”, the amount of money thus corrected totaled 239 million yuan, or 96%. Other problems are being addressed.

6.    With reference to the unauthorized, over standard and cost-overrun construction of office buildings and training centers of the five units affiliated to the four departments including the General Administration of Civil Aviation and the Ministry of Information Industry, measures had been taken to re-design, commercialize the over standard part of the buildings and carry out the market-oriented operation, which had resulted in saving 1.625 billion yuan, or 93.4%. As regards other problems, the departments concerned have ordered their affiliates to get down to rectification.

Following hand over clues of 17 cases suspected of possible economic offenses found by the CNAO in the budgetary implementation of the central government departments to the departments concerned for investigation and handling, 16 persons had been disciplined by the Party and government or punished for their criminal offenses.

Prior to this audit of the central government departments’ budgetary implementation, the CNAO had conducted audit investigations on the cost-effectiveness of the 25 projects of the central government departments. The entities attached great attentions to the problems found and the suggestions made by the CNAO, and they had taken practical measures to improve project management, explore possible options for solving the problems. While they were engaged in rectifications, they had also enhanced internal control and system-building, and their awareness of cost-effectiveness had been further enhanced.

Besides,the problems relating to the 2.267 billion yuan found by the CNAO in its audit on the 2006 final accounts (drafts) of the 25 departments had been resolved by adjusting accounts or the statements of final accounts, with the result that 1.721 billion yuan, or 75.9% had been thus cleared of problems.

V.   Rectifications of the problems found by the CNAO in department-affiliated units

The problems found by the audit on the establishment, operation and management of the entities affiliated to the central government departments concerned a wide range of issues and the reasons are also very complex. They need to be gradually solved in the context of the in-depth reform of the administrative and financial systems. After the submission of the audit report, the departments concerned have been instructed by the State Council to study the problems.

VI.              Rectifications of the problems found in the special-item financial audit

1.    Rectifications of the problems found by the CNAO in the Social Security Fund.

The problems found by the CNAO in the Basic Old-Age Insurance Fund for Employees in Enterprises, Rural-Urban Employees’ Basic Medical Insurance Fund and Unemployment Insurance Fund had been taken seriously by the local governments, and practical measures had been taken to address them. The 22 provinces (autonomous regions and municipalities) which include Beijing, Tianjin and Hebei, had all finished solving the problems in accordance with the audit decisions. The remaining 12 provinces (autonomous regions and municipalities) had corrected part of problems. According to statistics, of the 8.794 billion yuan that the CNAO had demanded to rectification or correction, 8.666 billion yuan, or 98.5% had been straightened up, and 7.918 billion yuan embezzled or misappropriated had been either recovered or readjusted in the accounting items. And 748 million yuan had been promised to be solved by stages in accordance with the audit decisions.

2.    Rectifications of the problems found in the audit on the fund for Natural Forest Resources Protection Project.

The State Forestry Administration and eight provincial (regional) governments had paid great attention to the problems found by the CNAO in the fund for Natural Forest Resources Protection Project. The SFA had come up with measures such as fine-tuning its rules and regulations, enhancing its inspection role in supervision of the rectifications at local levels. 121 million yuan, or 93.1% of all the problem financial resources found by the audit involved in reporting fake data and fraudulently claiming, diversion of fund and withholding the money had been corrected. All of the problems relating to withholding the money, over standard construction and fictive expense entries had all been tackled, the others are still pending.

3. Rectifications of the problems found by the CNAO in the Three Gorges key water conservancy projects and the migration fund for the Three Gorges Reservoir region.

The China Three Gorges Project Corporation (CTGPC) had given first priority to the problems found by the CNAO in its key water conservancy projects, and had addressed them in a conscientious manner. It had taken three measures with regard to the failure to strictly follow the bid and tender requirements for some small and medium-sized contracted projects: first, it had enhanced the public bid and tender requirement, cancelled the project owner’s mandatory subcontracts, improved the pre-bid planning, optimized the division of the bid sectors, so as to avoid sector-splitting and sector-division during the bid award, and the proportion of the projects subject to public bid and tender had reached 93%; second, it had a better management of the labor subcontract, and had detailed the provisions concerning project subcontract in the terms of the bid and tender document for new projects by setting forth the autonomy of the subcontract forces, kept a close watch on the way how the construction units performed their obligations, and strictly forbidden the illicit re-subcontract; third, it had regulated the bid and tender behavior of its affiliated companies and functional departments, devised rules for management, and tightened the scope for the projects subject to invitations to tenders. To deal with the relatively weak engineering supervision of part of the single projects, it had sacked the unqualified supervisory personnel, prompted the supervisory units to replenish qualified ones as per the contracts, and increased the proportion of badge-wearing supervisors and the overall competence of these personnel. Furthermore, monitoring and evaluation had been applied on the way the supervisory units performed their duties. CTGPC reinforced the quantity-based licensing, quality control and engineering costs verifications, thereby raising the supervisory level. In response to its failure to put into practice the accountability system for accidents resulting from low engineering quality, it had specified the procedures and duties for quality control, revised the Rules for Quality Control of the Three Gorges Projects and Relevant Regulations Concerning Grading the Quality in Engineering the Three Gorges Projects and Economic Responsibilities, intensified the analysis of causes for quality problems and delineation of responsibilities, and strictly followed the accountability system and reporting system. In addition, with regard to the lax management of contacts settlements and contracts management which led to the cost overrun of 488 million yuan, the CTGPC had addressed the problem by recovering over-estimates funds from the construction units and stopped the practice of including an agreed-upon amount of bonus in contracts.

Hubei province and Chongqing municipalities as well as their 10 affiliated districts (counties) had taken an active attitude towards the problems found by the CNAO on the Three Gorges reservoir region migrants’ fund. With reference to the 289 million yuan that some department-affiliated units acquired by means of inappropriate fund employment, reporting fake data and fraudulently claiming and policy-based subsidies, 259 million yuan, or 89.6% had been solved by recovery of funds, readjustment of project plans and accounting items. As for the unsolved problems, the local governments concerned have already formulated specific rectification measures. In conjunction with the unreasonable structure of expenses incurred from migrants’ training and slowdown in implementing part of the later-stage support projects intended for migrants, the Chongqing municipalities had taken measures to tighten the control over the expenses for infrastructure construction and expenses of the fixed assets obtained from the training expenditure, actively coordinate and prod the governments at various levels and migration organs in the reservoir region to speed up the progress in the construction of the later-stage support projects. In the wake of the referral of clues to five cases suspected of criminal offenses to the departments concerned for investigation and handling, four persons had been disciplined by the Party and government. After the audit, 5 cases suspected of criminal offenses had been handed over to the relevant responsible departments with 4 persons punished according to laws and CPC regulations.

4.    Rectifications of the problems found by the audit investigations on the toll-ways.

The Ministry of Communications and the governments of 18 provinces (municipalities) as well as their affiliated communications departments had attached great importance to the problems found by the audit investigations organized by the CNAO by keeping a watchful eye on the rectification, and as a result, the majority of the law-breaking or rule-breaking problems had been corrected. The Ministry of Communication had called special meetings on several occasions to deliberate on the rectification, and had rolled out three institutionalized rules with the possibility of coming up with eight more in the pipeline including the Rules concerning Equity-Assigning of Toll-ways that clearly set out the principle of  “non-toll-ways should predominate with the appropriate development of the toll-ways” for localities to follow so as to place a limit on the number of toll-ways, strengthen the management of land-use of such highways and the debt monitoring. Now, the provincial or municipal governments are taking the following measures to address the problem:

In the first place, the number of toll-ways should be under control, and the governments at each level should input more and more public funds in the construction of expressways. Most of the local governments are exploring the possibility of reforming the management system of toll-way construction and operation, increasing financial input in the expressway and other infrastructure construction, building up the capacity for debt service, minimizing the risk of debts.  Eleven provinces (municipalities) including Beijing, Zhejiang, Jiangsu are in the process of reapply the long overdue land expropriation formalities for expressways. And till now, over 300 thousand mu of land have gone through the formalities.

Second, effort will be made to clear up and modify the illicit setting up of tollgates. Provinces like Jiangsu, Shanxi and etc. had abolished the Rules for Management of the Sharing of Excessive Toll Revenues and other regulations regarding the use of toll revenues as capital fund for newly-built expressways. Provinces or municipalities such as Chongqing and Zhejiang are actively studying the possibility of abolishing or merger of tollgates, and more than 100 of them have stopped collecting or are about to stop doing so. Again, provinces like Hebei and Shaanxi are taking active steps to recover those toll revenues held back or embezzled. And provinces like Henan and Yunnan are taking another look at the toll-paying deadlines. Anhui and others have already ceased to raise toll fees to collect money for construction of rural highways.

Third, efforts are also made to perfect the relevant rules and regulations in order to regulate the assignment of toll-way operation rights. Anhui Province and Zhejiang Province have come up with documents stipulating the approval process for assignment of expressways’ operation right, and ensuring a sound management mechanism for assignment of operation rights. Heilongjiang Province, Sichuan Province and other provinces are re-positioning the government-paid-loan expressways that have been turned into toll-collecting ones in violation of the rules by recovering such illicitly assigned expressways and giving them back to the governments for management and operation. The Beijing municipality will tighten the control over the assignment of expressways’ operation rights for the future, and stop approving the listing of assets of toll- ways on the stock market. The CPC Central Committee’s Disciplinary Commission and other departments concerned are looking into the case involving Anhui province which had assigned its operation rights of the Hefei-Chaohu-Wuhu Expressway at a marked-down price before re-purchasing it at a higher price causing the loss of 1.24 billion yuan. The clues to the 13 cases suspected of criminal offenses found in this audit of toll-ways had been sent to the department sconcerned for further investigation, and as a result, 34 persons had been indicted and five persons had been disciplined by the Party and governments.

VII.           Rectifications of the problems found by the CNAO in other financial revenues and expenditures

1.    Rectifications of the problems found in the balance sheets of the three joint-stock banks.

The Bank of China Ltd, the Bank of Communications Co Ltd and the China Merchants Co Ltd had all addressed the problems found by the auditors in a serious manner. On the basis of in-depth checks and delineation of responsibilities, they had meted out administrative penalties to 163 persons held accountable, and enhanced the business control, and done their best to correct the behaviors in violence of laws and regulations.

(1) The problems relating to illicit dealings with the real estate business. The Bank of China and the Bank of Communications had stopped issuing illegitimate loans to the real estate firms that failed to meet the lending requirements, and drew back 615 million yuan of such loans. The three banks had already tightened their control over the access to loans for land reserves. The Bank of Communications had taken a closer look at the eligibility for land reserve loans. The Bank of China and the China Merchants Bank had drew back their loans from those projects that failed to meet the requirements for land reserve loans such as failure to provide pledges, and had recovered 1.122 billion yuan of loans. The Bank of China and the Bank of Communications had also enhanced their mortgage-lending managements by pre-lending investigation, on time lending inspection and post-lending examination as well as by means of checks and supervisions, so as to pre-empt any false mortgages. And they are employing legal means to actively recover those false mortgage loans. The Bank of Communications and the China Merchants Bank had fine-tuned their respective mechanisms against attempts to invest in the real estate market credit fund and other similar funds which are not fit for credit-giving. They had introduced a system whereby those large-sum agent loans given out by their branch offices needed to be reported to the head offices for record, and they had screened the qualifications of the principals giving mandates to agents and cleaned up the grey-area agent loans with the result of recovering the full amount of 250 million yuan of illicit agent lending found by the auditors. As regards the problem relating to the Shanghai State-owned Assets Operation Co Ltd that lent 290 million yuan of the working capital loan obtained from the China Merchants Bank Shanghai Jingansi sub-branch at the annual interest rate of 5.022% to a real estate company as an agent loan at the annual interest rate of 8%, the China Merchants Bank had withdrew the full amount of the money.

(2) Problem found in the settlement business which is in violence with relevant regulations. The three banks had implemented education and trainings about relevant laws and regulations, required their branch-offices and sub-branches to abide by the Rules for Management of the RMB Settlement Accounts and other anti-money laundering laws and statutes, keep a constant watchful eye on the flow of bank accounts’ money and raise the awareness of risks. The Bank of Communications had optimized the operational procedure for bank account-opening, and made it a rule that its field offices could only deal with bank account-opening and registry of information, while the bank account-opening data had to be re-examined by the branch office accounting and settlement departments in order to have a better control of the bank account-opening. The China Merchants Bank had launched a half-year long education on law-abiding and compliance of regulations, had conducted investigation into illicit behaviors existing in the settlement business, and disciplined the persons who took the responsibilities. The Bank of China had further strengthened its control on the settlement business.

(3) Regarding the problems relating to criminal activities in the field of finance. In the transfer of clues to the 37 criminal cases to the department concerned for investigation, 23 persons had been arrested and indicted pursuant to law. One person had been disciplined by the Party.

In addition, the three banks had readjusted their accounting items for the 900 million yuan of inaccurate account in response to the audit, and they had entered the 329 million yuan kept in their respective “private coffers” in the statutory accounting books for cost accounting.

2.   Rectifications of the problems found by the CNAO relating to the economic Accountability audit on the leaders of eight central enterprises.

(1) The problems of inaccurate statements of profit and loss. With the exception of one enterprise whose postponed probe had made it impossible to hand down the audit decision, the rest seven enterprises had either readjusted upward their profit to 2.515 billion yuan, or reduced their profit to 4.052 billion yuan in accordance with the audit decisions. The 18 off-book accounts found by the auditors had been involved in the accounting books.

(2) The problems relating to the slips in decision-making and mismanagement. The seven enterprises had taken active measures to clean up their respective investments and lending to overseas partners, and had succeeded in recovering and activating nearly 1 billion yuan of assets. Furthermore, they had improved 145 sets of rules concerning management of overseas investments, borrowings, pledges, goods procurements etc, with a view to avoiding new losses and the erosion of the state-owned assets.

The clues to the 22 cases suspected of criminal offenses found by the CNAO had been referred to the departments concerned for investigation, and 14 persons had been arrested whereas 24 persons had been disciplined by the Party and government.

Besides, regarding the problems found in the performance audit investigation, the five central enterprises had taken steps for energy conservation and environment protection by increasing their input in the pollution treatment and renovation of equipments, revising 42 set of rules on management, and as a result, their financial management had been further regulated. The clues to the nine case suspected of criminal offenses found by the CNAO in the performance audit that had been submitted to the department concerned have now entered the stage of investigations and handling, and four persons have been arrested, indicted and convicted, and 45 persons have been disciplined by the Party and government.