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No.6, 2008 (General Serial No. 30):Audit Investigation Findings on the Special Central Fund for Agricultural Development in 50 Counties
2008-12-24日   Soure : :

Audit Investigation Findings on the Special Central Fund for Agricultural Development in 50 Counties

(Announced on July 25, 2008)

In 2007, the National Audit Office of China (CNAO) carried out audit of the management and application of the 2006 central transfer payment for agricultural in 16 provinces (autonomous regions) including Heilongjiang, Jilin and Shanxi with special audit of 50 counties by sampling. The provincial governments (governments of autonomous regions) concerned and the Ministry of Finance had been asked of their views. Now, the audit investigation findings are made public as follows:

1.   Background and overall assessment

According to the investigation findings’ statistics, the year 2006 saw the central government appropriate 126.4 billion yuan to 16 provinces (autonomous regions) as special fund for agricultural, which accounted for 46% of the total amount of the central government’s special transfer payment of the same year. Based on the audits of 50 counties by random selection, the total amount of these special funds for agricultural development that went to those counties in 2006 came to 5.4 billion yuan, which accounted for 48% of their local ordinary annual budgetary revenues in that year.

The same audit investigation found, over the recent years the central committee of the Party and the State Council have formulated a series of policy measures in support of agriculture, rural areas and farmers (the so-called Sannong), and the central government has augmented its financial input in such funds in the localities, thus considerably building up the capacity of the grassroots governments to support Sannong, and boosting the smooth launch of building new rural areas, as evidenced by the following facts:

—The special central fund for agricultural development has become the primary funding source of the grassroots to address the Sannong problems. From 2004 through 2006, the fund the central finance gave out to 16 provinces (autonomous regions) had increased to 24% annually, and the 50 counties subject to audit by sampling even reached 31%. The share of central fund in favor of agricultural development spent on the provincial, municipal level as well as county finances accounted for 15%, 9% and 76% respectively.

—Such fund has played a crucial role in building new rural areas. In 2006 the special central fund for agricultural development committed its main portion to key Sannong-related fields such as rural highways, easy transportation access links, comprehensive diesel and chemical fertilizer subsidies to grain-growing farmers, natural forest protection projects, comprehensive development of agriculture and new-type rural cooperative health care, thus motivating the local investments to commit funding amounting to 162.8 billion yuan, and had scored remarkable results. According to statistics by the departments concerned, in 2006 the grain-growing capacity in 16 provinces (autonomous regions) had  increased by 12.6 billion kilograms , the total agricultural output had been up by 245.7 billion yuan over 2005, 434.9 thousand kilometers of new roads and refurbished roads were added, 2.58 million biomass pools were built benefiting 18.69 million rural inhabitants. In addition, 24.2 thousand of primary and middle schools were newly-built or renovated, enabling 44.97 million students to benefit from the policy of having free tuition, free textbooks and boarders subsidies, 5589 medical institutions were renovated or expanded , which entitled up to 246.76 million people to new-type cooperative rural medical care.

—The management of the special central fund for agricultural development has been gradually enhanced. Thanks to the importance attached by the local governments and departments concerned to the management of the special central fund for agricultural development, the responsibility-sharing system had come into being in a gradual manner. Besides, efforts to work out rules and regulations were also strengthened. According to incompletes statistics, the central finance had formulated more than 60 measures concerning management of the fund for agricultural development, the governments or their departments concerned in 16 provinces (autonomous regions) and 50 counties had made public over 330 management requirements, securing the regulatory management of such fund by means of system-building . Third, efforts were also made to explore how to integrate the special fund for agricultural development. Judging from the 33 pilot-project surveys both in the central and provincial level, different approach taken by different county in light of its specific conditions to move towards integration of funds for agricultural development and to identify key projects for committing such financial resources bearing in mind the targets for regional economic development had achieved its initial results. By way of example, Shilou county in Shanxi province had integrated eight categories of funds totaling 160 million yuan under control of 20 agriculture-related departments, and it had yielded fairly good social and economic results.

2.   Main problems found in audit investigation

(1)              Overall, the special central fund for agricultural development has yet to be effectively raised and integrated, and it is hard to pool financial resources to address an outstanding issue.

At present, there is no department either at central level or at local level that can do the job of pooling and managing funds for agricultural development. There are approximately 20 units  from the central government to the localities that are engaged in fund management, with each unit responsible for as few as one or two items or as many as a dozen; the special fund under control of a certain department has duplicated or overlapping applications, for example, improving the school-running conditions, farmers’ training and others. On the average, there are three departments controlling five items of special funds. The multiple management modes and multiple channels for allocation have resulted in spreading the fund thin over a number of projects the otherwise small amount of the special central fund for agricultural development as it had been distributed level by level by a number of units on projects. Of the 50 counties audited by sampling, there were 2.387 billion yuan committed by the central government to the special fund managed by projects, but they were spread thin over 45.5 thousand projects. As various departments have functions crossing the boundary of others, and have different policy requirements as well as poor communication, the departments responsible for fund allocations are hard to coordinate themselves when it comes to the project selection, investment directions, which again lead to duplication of projects and overlapping of policy goals and cross purposes. Zhangbei county in Hebei was a case in point. In building motor-pumped wells for drinking water and irrigation in rural area in 2006, it had sunk 155 wells. But this had been done by five departments in accordance with seven projects with each department filing its own application and organizing the engineering. The smallest number of wells sunk by one department was two, and the biggest number was 55. Of the amount of fund given to Shanxi province in 2006 by the central government from the central fund for agricultural development, 38 items totaling 1.95 billion yuan were duplicated projects. Constrained by compartmentalized management, rigid rules and regulations as well as the requirement of committing special money for special applications, local governments do have difficulties integrating the various funding sources when applying the special fund. Take the year 2006 for instance, Huachuan county of Heilongjiang province got 102 million yuan from the special central fund, of which 50.45 million yuan had to be managed by project. This amount of money was 2.34 times the ordinary budget of that county. As a big paddy-growing county, it badly needed to address the issue of its outdated water conservancy facilities and insufficient irrigation system. The project on Yuelai irrigation area channels built with 86.46 million yuan of investment failed to get funded eight years after the project approval. Had the special fund been integrated in a scientific manner, the problem could have been solved at the earliest date. In fact, the money allocated from the special central fund for that irrigation project totaled only 8.15 million yuan, and other funding managed by project had spread over to 2148 specific projects, and as a result, each project was just given an average of 19,700 yuan, the smallest amount being 1200 yuan.

(2)              The special central fund for agricultural development was multi-layered in terms of fund allocation, and goes through a long procedure in addition to its poor management mechanism.

Currently, among the special fund allocated by project, the prevalent practice is to file project applications from bottom up for the selection and determination by the central government and the relevant department of a province before allocating the money direct to the working mechanism of a given project.  Judging from the perspective of an auditor, the existing working mechanism is not scientific and calls for improvement.

To begin with, the level by level application for project approval takes too long to secure the project’s timely implementation and fund disbursement, making a definite dent on the efficiency. Of the more than 40 thousand projects filed for approval by 50 counties audited by sampling, 39% of which needed over six months to get approval and paid in. In terms of fund disbursement following project approval, 32% projects needed over six months to get the money paid in. 16 provinces (autonomous regions) got 65% of the money from the special fund in the second half of 2006, with the fourth quarter accounting for 29.92%, whereas 50 counties got 44% of the money from the special fund in the fourth quarter and 22% in December alone, and still, there were 457 million yuan not made available. And from the perspective of project implementation, 57% of projects financed by the special fund were implemented in the same year, 21% were completed as required in the same year, while 43% failed to be implemented. As a result of untimely project formulation, approval and late fund disbursement as well as behind-the-schedule project construction, the implementation of the central government’s policy favoring agriculture and farmers was affected.

Some localities tend to focus more attention on getting financed for their projects than management and supervision of the fund. The way the mechanism for disbursement the special central fund for agricultural development is now likely to make the local governments ignore their responsibilities for fund management and supervision while vying for funding. Just to illustrate, in April 2005, the Anhui Agricultural Commission had this conclusion after acceptance check of the 2003 T-bonds-financed biomass construction project: “the rate of biomass pool construction, the success rate and the availability of the T-bond financing are all 100%...so it passed the acceptance check.”  However, the sampling check by auditors of Jiutian township Lanjia village that had passed the acceptance check found that the rate of completed biomass pools was less than 50%.

(3)              Some localities had the problem of increasing farmers’ burden and infringing on their interest.

The audit found that some competent departments (units), driven by their own interest or having no sense of responsibility, were still overloading farmers and infringing on their interest in the course of project implementation.

First, the counterpart funding for projects on rural infrastructure construction (e.g. rural highways, biomass construction, rural safe drinking water etc.) and poverty alleviation projects were not made available, thereby aggravating the burden of farmers, and adding new debt burden to the countryside. The sampling checks conducted by auditors found 16 of the 50 counties (municipalities) had such problems. For example, the local counterpart funding for the central-subsidized poverty-alleviation projects in Huachuan and Gannan county of Heilongjiang province should have totaled 5.7584 million yuan, yet it turned out that only 605.6 thousand yuan at provincial level were secured.

Second, there were cases of taking illegal possession of and misuse of the special central fund for agricultural development, affecting the policy goal. According to incomplete statistics, the departments and project units concerned in 16 provinces (autonomous regions) had taken illegal possession of or misused the special central fund for agricultural development to the amount of more than 600 million yuan, of which 125 million yuan were illegally applied by 50 counties by audit sampling in 2006 for the purpose of budgetary balances, covering the shortfalls in expenditures and distribution of subsidies etc.

Third, there were also cases involving interception, shortchange of farming subsidies, illegal fee collection that did harm to farmers’ interest.

As found by auditors, 10 counties (municipalities) in eight provinces (autonomous regions) had such problems. For example, in 2005, Jianli county in Hubei province illegally intercepted and shortchanged the earmarked central subsidy to 212.5 thousand farming households for improved paddy variety totaling 3.6262 million yuan, and not until July 2007 when the auditors found out was the subsidy gradually given out to farmers.

(4)                The problem of local governments’ failing to give a complete picture of the income from the central subsidies in their budget formulations has yet to be effectively solved.

During the audit of the central transfer payment of 2002 and 2005, the CNAO had pinpointed the problem of the incomplete picture of income in their budget formulations without including the central subsidies, the Ministry of Finance had looked into the problem and came up with an Instruction concerning the Way the Local Government Reports to the People’s Congress at the Same Level on Draft Budget, Final Account and Budgetary Implementation, committing the local governments to “ report the implementation figures from the previous year or the forecasted figures given by the higher level.” However, judging from the audit findings, this problem is far from getting resolved. The year 2007 saw 16 provinces (autonomous regions) fail to include in their budgets 77% of the special central fund for agricultural development as required by the Ministry of Finance, and as high as 95% of the 50 counties had failed to include in their budgets such fund.

3.   Audit Recommendations

In the light of the problems found in the audit investigation findings concerning the special central fund for agricultural development, the CNAO makes the following recommendations:

(1)              Renewed efforts should be made to integrate the special central fund for agricultural development. With a view to effectively giving full scope to the policy effect of the special fund, we need to take the opportunity of building socialist new village , integrate the county (as a basic level) with multiple level so as to take stock of , classify and integrate the existing special central funds for agricultural development, optimize the application structure of such fund, gradually form an fund application management mechanism that has scientific classification, clear division of responsibilities, standardized management and orderly operation. Any new policy in support of agricultural development and favoring farmers devised by the central government and various departments needs to do their best to arrange funding from financial transfer payments and from ordinary transfer payments in particular, so as to curb the scope and growth speed of special transfer payments and gradually regulate the transfer payment system.

(2)               Efforts should be made to further speed up the government restructure and streamline the mechanism for decision making and management of central projects for agricultural development. As there exist duplicated departmental functions in the management of the special central fund for agricultural development and the absence of a unified approach between the central government and local governments in terms of the “responsibilities, rights and interest” in fund allocation and  project determination, steps need to be taken to further define the mandates of various government departments regarding their respective role in supporting agriculture in conjunction with government restructure. And vigorous efforts should be made to solve the overlapping organizations, undefined mandates and lack of unified authority, and identify a comprehensive functional department to manage the special central fund for agricultural development, to be primarily tasked with the Sannong development program, policy, and the study and formulation of annual investment targets and investment planning, unified pooling and coordination of financial resources for agricultural development and their management, set up corresponding responsibility systems around the planned projects, with a view to shaping a working link system whereby there is one fund in one area, and those departments with different mandates can coordinate and compliment each other thereby unifying different mandates, avoiding the many anomalies brought about as a result of multiple management, and generating a much greater efficiency of the special central fund.

(3)              We should do our best to perfect the mode of management of the special central fund for agricultural development, and delegate strong responsibility to each province. The central finance should appropriate the shares of  special fund to provinces( autonomous regions and municipalities) in conformity with the mid-term and long-term development program as well as annual plan  and views of each agriculture-related department, on the basis of a comprehensive picture of each province’s financial strength , bearing in mind  the principle of openness, transparency and statutory standard, and  leave the provincial governments to do the job of allocating the money and selection of projects. And the provincial governments and departments concerned should take practical steps to take on the responsibilities for good management and prudent spending of the money. Furthermore, they should comply with the overall Sannong requirements of the central government, pool the fund for allocation in the light of the specific economic conditions in the countryside with various constraints in mind, have the funding made available to the grassroots and concrete project, and be responsible for effective and efficient application of the funding and implementation of the project.

4.   Rectification Results of the problems found in audit Invstigation


The governments of the 16 provinces (autonomous regions) have attached great importance to the problems found and the comments made by the CNAO, and have committed the departments concerned and units to take a serious approach and loose no time to study one by one those problems for timely rectifications so as to have a better management of the fund for agricultural development, to take practical steps to manage and prudently use those money with a view to raising the fund application efficiency. Judging from the feedback of the local governments and the departments concerned, they have all come up with specific measures to address the illicit acts found by the CNAO by recovering and returning the special fund they had taken illegal possession of and embezzled, and holding accountable those relevant departments (units) and personnel . So far, 93% of the problematic financial resources have been corrected or subjected to rectification measures (such measures taken by 50 counties have covered 90% of the fund). In the meantime, inter-department cooperation and coordination have been enhanced, sound  responsibility systems have been set up, close watch and supervision have been put in place to timely discover, correct and handle problems, thereby ensuring the up-to-standard management and safe and statutory application of  the special fund for agricultural development.