Government auditing in China: Problems and reform

Abstract

This paper evaluates the current government auditing system in China and the proposal to move it from the control of the executive body (the State Council) to the control of the legislature (the National People's Congress). Interviews with government auditors, government and people's congress officials, and leading academics identify the problems caused by lack of audit independence. Although audit independence can be increased by moving the control of government auditing to the legislature, many of our interviewees considered such a move as infeasible in the current political climate. To smooth the reform toward a legislature-led audit system, we propose a “Dual-Track System” in which the different audit responsibilities currently undertaken by the government auditing system are separated. The responsibility for auditing the use and control of fiscal budgets by the central and regional governments would be under the control of the legislature as this area of government auditing has a clear need for audit independence. Other audit functions including economic responsibility auditing, special purpose funds auditing, financial service auditing and state-owned enterprise auditing would remain under the control of the government. This dual track approach would, we argue, be a politically acceptable compromise as it would strengthen audit independence where it is most needed but also enable the government to maintain strong economic control.