Article 1    These Practice Directions are formulated in accordance with Article 24 of the Audit Law of the People's Republic of China for the purpose of standardizing auditing supervision over public grants and donations and ensuring the quality of such audit.

Article 2     The term "public grants and donations" mentioned herein refers to monetary amounts and physical articles in various forms donated and granted by domestic and overseas government organizations, enterprises, undertakings, non-government organizations, communities, individuals and international organizations for China's fight against disasters and provision for disaster relief, public welfare and charity.

Article 3     The term "audit of public grants and donations" mentioned herein refers to auditing supervision conducted by audit institutions over the  truthfulness, compliance and effectiveness of the receipt, allocation, utilization and management of public grants and donations by government organizations, enterprises, undertakings and other relevant units.

Article 4     The objective of auditing public grants and donations is to help the receiving bodies reinforce their financial management, ensure truthfulness and compliance of the collection, allocation and utilization of public grants and donations and improve the economic and social effects of the utilization of such funds.

Article 5    When auditing financial management and internal control systems of organizations in charge of the receipt, allocation, utilization and management of public grants and donations, audit institutions shall examine the following items:    
(1) Whether establishment of bank accounts, accounting records, books of account, accounting treatments, forms of vouchers, procedures of posting as well as the establishment of financial organizations and duties of accounting personnel are in accordance with the requirements of the Accounting Law of the People's Republic of China;
(2) Whether there are sound and effective procedures of review and approval for the receipt, allocation, utilization and expenditure of the granted or donated monetary amounts or physical articles;  whether there are sound and effective systems for financial management and internal control such as methods of fund management;
(3) Whether there are sound and effective management systems for the inspection and acceptance, claim for usage, warehousing, scheduling and registration of properties and physical assets;
(4) Whether reporting systems and performance benchmarking systems for the allocation and utilization of funds are established and operated in a sound and effective manner.

Article 6    Audit institutions shall audit the following items of revenues of public grants and donations:
(1) Whether every receipt of public grants and donations is posted into relevant accounts in full;   whether designated bank accounts are opened  thereof; whether ledgers are established according to relevant stipulations;
(2) Whether receipts for received public grants and donations comply with relevant regulations; whether receipt stubs are consistent with  income ledgers or whether bank deposits are consistent with cash in hand;
(3) Whether incomes from appreciation in value are transferred to revenue items of public grants and donations.

Article 7    Audit institutions shall audit the following items of allocation and utilization of public grants and donations:
(1) Whether procedures and systems for the allocation, distribution and utilization of granted and donated monetary amounts and physical articles are sound and in accordance with relevant regulations;
(2) Whether granted and donated monetary amounts and physical articles are allocated and donated in accordance with intentions of the grantors or donators or with designated purposes; whether there are unauthorized retainment, appropriation and illegal distribution of such monetary amounts and physical articles and fraudulent disclosure of expenses.

Article 8     When auditing the management of publicly granted and donated assets and physical articles, audit institutions shall focus on the following aspects:
(1) Whether there are internal control systems for the arrival in and departure from the inventory of such assets and physical articles; whether historical records are complete;
(2) Whether disposals of publicly granted and donated assets and physical articles at alternative prices have undergone proper procedures of reporting and approval; whether the prices are reasonable.

Article 9    Audit institutions shall conduct audit of social securities funds in accordance with stipulated audit procedures.  Where acts of revenues and expenditures are found in violation of relevant laws and regulations, measures of sanction shall be metered out in accordance with relevant laws and regulations.  Material problems found in the course of audit should be reported to relevant governments or competent departments.
    
Article 10    Audit institutions shall, at the completion of their audit, produce integrated audit reports on public grants and donations and submit such reports to the people's governments at their corresponding levels and audit institutions at the next higher levels.

Integrated audit reports shall include the following items:
(1) Basic information about audit of public grants and donations;
(2) Overall evaluation of the receipt, allocation, management and utilization of public grants and donations;
(3) Main problems and the reasons thereof in the course of collecting, allocating, managing and utilizing public grants and donations;
(4) Opinions or recommendations for imposing sanctions or penalties against violations discovered in the course of audit as well as the consequences of such sanctions or penalties.

Article 11    Audit institution may publish audit findings concerning public grants and donations according to the law.

Article 12    Where foreign governments or international organizations request the production of audit reports on the utilization of their relevant grants and donations, audit institutions shall do so according to relevant stipulations.

Article 13    The authority to interpret these Practice Directions rests with the CNAO.

Article 14    These Practice Directions shall come into effect as of January 1, 1997.