Article 1    These Practice Directions are formulated in accordance with the Audit Law of the People's Republic of China and the  Provisional Practice Directions for Auditing Central Budgetary Implementation stipulated by the State Council.

Article 2     The term "operating funds" mentioned herein refers to funds designated for the development of public undertakings such as science, education, culture, public health, radio/television and films, earthquake prediction and prevention, oceananic affairs, sports, civil affairs, foreign affairs, agriculture, industry, transportation, postal service and tele-communication, commerce and trade, administration of industry and commerce and commodity inspection, which shall include various funds from budgetary appropriation and not-on-vote arrangement, turnover funds, special funds and operating charges.

Article 3     The term "audit of operating funds" mentioned herein refers to audit of the truthfulness, compliance and effectiveness of the financing, management, allocation and utilization of operating funds.

Article 4    Audit institutions shall conduct audit of operating funds for the purpose of ensuring the truthfulness, compliance and effectiveness of budgetary implementation and final accounts of operating funds, reinforcing the management of operating funds by competent departments and promoting healthy and smooth development of various public undertakings.

Article 5    When auditing budgeting and management of financial plans of operating funds, audit institutions shall focus on the following aspects:
(1) Whether preparation of budgets, financial plans and budgetary adjustments are submitted for approval according to stipulated procedures;
(2) Whether financial departments or other competent superior departments appropriate and pay operating funds in time and full and in accordance with the approved budgets or financial plans, levels of budgetary management and actual progress of fund utilization;   whether there are encroachment on as well as overdues, unauthorized retainment and appropriation of operating funds;
(3) Whether annual final accounts and financial reports and other relevant accounting statements, books and vouchers are true and regular and submitted to financial departments or competent superior departments for review and approval.

Article 6     When auditing revenues of operating funds, audit institutions shall focus on the following aspects:
(1) Whether budgetary appropriations for operating funds are paid in time and full according to the approved budgets and posted into relevant accounts;
(2) Whether items, standards and scopes of charges for operating funds are in compliance with relevant stipulations and submitted to financial departments and pricing authorities above the provincial level for review, approval and filing; whether receipts of operating funds are in compliance with relevant regulations;  whether there are problems of random charging, irregular financing and arbitrary cost apportionment such as unauthorized increase of charging items, expansion of charging scopes and upgrading of charging standards;
(3) Whether revenues that should be turned over to financial departments or competent superior departments are made in time and full; whether there are evasions, overdues and unauthorized retainments;
(4) Whether revenues to be matched with expenditures are in compliance with relevant stipulations and are posted into the correct accounts in time and full;
(5) Whether there are problems of concealing incomes and establishing extra accounts and unauthorized treasuries.

Article 7   When auditing expenditures of operating funds, audit institutions shall focus on the following aspects:
(1) Whether expenditures of operating funds are made according to plans and for the pre-determined purposes; whether there are problems of expenditures exceeding planned ceilings;
(2) Whether there are payments of bonuses, allowances, subsidies and benefits in kinds in violation of relevant stipulations;
(3) Whether operating funds are used for capital construction;
(4) Whether budgetary operating funds are transferred outside the budgets or whether items which should be disclosed as not-on-vote expenditures are disclosed as budgetary ones;
(5) Whether utilization of operating funds has achieved favorable social and economic effects.

Article 8    When auditing fund management of operating funds, audit institutions shall focus on the following aspects:
(1) Whether accounting treatments and management are carried out in accordance with management approaches, nature of funds and appropriation methods designated for budgetary funds; whether bank accounts are opened according to state stipulations; whether funds from public finance are transformed into bank deposits;  whether public funds are deposited into private accounts;  whether bank accounts are lent out, leased  or transferred;  whether there are loopholes in the management of checks;
(2) Whether management and utilization of cash are in compliance with relevant stipulations of cash management;
(3) Whether purchases of negotiable securities and their sources of financing are in compliance with relevant laws and regulations; whether the related accounting treatments are correct; whether such securities are kept securely and appropriately.

Article 9     When auditing current account items of operating funds, audit institutions shall focus on the following aspects:
(1) Whether current account items are true and regular; whether there are problems of concealing incomes and expenses or directly disclosing incomes and expenses with the use of current account items;
(2) Whether current account items are strictly controlled; whether check-ups are made timely;  whether there are protracted account balances of loss or occupation of current account items by other units or individuals;
(3) Whether there are illegal outward investments and unauthorized borrowings and lendings of operating funds with the use of current accounts;
(4) Whether there are random distribution of monetary bonuses and benefits in kinds or fraudulent claims of cash with the use of current accounts.

Article 10    When auditing properties and assets acquired with the use of operating funds, audit institutions shall focus on the following aspects:
(1) Whether requisite plans and proper procedures of review and approval exist for the acquisition of equipment, materials and physical articles;  whether there are unauthorized purchases of monopolized commodities;
(2) Whether management of such physical articles as fixed assets, materials and  consumable goods of low value is conducted by strictly implementing the systems of inspection and acceptance, authorized claiming for use of goods, proper warehousing, scheduling and recording;
(3) Whether there are free occupation or loss of state assets;
(4) Whether accounting treatments are in compliance with relevant regulations; whether accounts are inconsistent with physical existence of properties and assets.

Article 11    When auditing management and utilization of turnover funds and special foundations of operating funds, audit institutions shall focus on the following aspects:
(1) Whether the establishment of turnover funds and special foundations is in accordance with relevant stipulations and has been submitted to competent departments for  review and approval; whether the sources of financing for such funds and foundations are in compliance with relevant laws and regulations;
(2) Whether turnover funds are utilized for the stipulated purposes and are checked up and claimed back in time; whether special foundations are used for the stipulated purposes;
(3) Whether special accounts are established for relevant accounting treatment of turnover funds and special foundations; whether the management of such funds and foundations are in compliance with relevant stipulations;
(4) Whether the utilization of turnover funds and special foundations has achieved favorable economic and social effects.

Article 12    To audit operating funds, audit institutions may practice the approaches of on-spot audit or auditing documents sent over by the audited bodies or a combination of the two.   Where necessary, audit institutions may also organize inter-sector audit, special audit or special audit investigations.

Article 13    Where their audit involves the issue of confidentiality, audit institutions and their auditors shall conduct audit according to relevant confidential requirements and shall be obliged to preserve confidentiality for state secrets acquainted in the course of audit.

Article 14    Audit institutions shall conduct audit in accordance with stipulated audit procedures.  Where acts of revenues and expenditures are found in violation of state laws and regulations, measures of sanction should be metered out in accordance with relevant laws and regulations.  For material problems found in auditing revenues and expenditures of operating funds, serious research should be conducted while feasible opinions and recommendations of improvement should be made with special reports prepared for submission to governments at various levels or their competent departments.

Article 15    The authority to interpret these Practice Directions rests with the CNAO.

Article 16    These Practice Directions shall come into effect as of January 1, 1997.