1. AUDIT TO DETECT FRAUD AND CORRUPTION: EVALUATION OF THE FIGHT AGAINST CORRUPTION AND MONEY LAUNDERING China Nov 12, 2013

2. "Audit Storm" in China In 2003, ex-Auditor General Li Jinhua presented the annual audit report to the Standing Committee of the National People's Congress and openly disclosed several severe conruption cases. It was the first time that the audit report was published to the public. This received significant public attention and was labelled as "audit storm". This year, Premier Li Keqiang stressed on several occasions, National Audit Office should be a sword against corruption and our office is now putting more and more effort in anti-fraud areas.

3. Legal Status, Structure and Mandate of CNAO Audit institutions in China are subordinated to the people ’ s government as a part of the executive branch of the state, directly under the leadership of the Premier,organizes and administers audit work of the whole country and reports its work to the State Council. The legal status of auditing has been explicitly written in the Constitution of the People ’ s Republic of China. The Constitution also stipulates that, the Auditor General shall be a member of the State Council. As for the yearly budget, it undergoes the scrutiny and review process of Ministry of Finance (MOF) and approved by the National People ’ s Congress.

4. Audit Objects of CNAO Government and departments at corresponding levels State institutions as well as other public institutions using government funds; The Central Bank; The State-owned monetary institutions and the monetary institutions where State-owned capital dominates or predominates; The State-owned enterprises and the enterprises with State-owned capital controlling their shares or playing a leading role; The construction projects fully or mainly financed by government investment; Aid or loans provided by international organizations or governments of other countries The principal leading persons of government departments or state-owned enterprises

5. Major Types of Audit Real Time Audit Performance Audit Compliance Audit/Regularity Audit Financial Audit Environmental Audit IT Audit Accountability Audit Ongoing Tracking Audit

6. Role of CNAO in the Prevention and Detection of Corruption Not indicate specifically the roles and responsibilities in anti-corruption, but well embedded within Article 2 of the Audit Law, Audit institutions shall, according to law, supervise through auditing the authenticity, legality and beneficial results of the budgetary revenues and expenditures or financial revenues and expenditures. Detection of the corruption is embedded in the regular audit services, normally it will be one of the audit objectives in the audit programme. All departments conducting audit are required to detect and investigate corrupt activities and transactions as far as possible.

7. Several seminars or training courses will be held every year to ensure auditors possess appropriate skills, knowledge, and abilities to identify and assess any potential irregularities. For example, a seminar on criminal cases will be held every year in Beijing. Both auditors and economic criminal police will introduce the procedures of and shared experience from the anti- corruption cases.

8. How is the Work done? Both Proactive and reactive approach will be adopted to detect corruption. Before the field audit, high risk areas of corruption will be targeted; Whistle-blowing is also an important source of criminal clues. After the discovery of the red flags or symptoms, National Audit Office will conduct further investigation before referring to other anti- corruption agencies.

9. High Profile Corruption Case During the audit, we found that, from year 2009 to 2011, some contractors of China High Speed Rail Projects obtained the project funds illegally by fictitious expenditure and then transferred these money to companies controlled by the same businesswoman in the name of bidding service charges.

10. CNAO found the case clues and referred to Central Commission for Discipline Inspection of the Party(CCDI). After investigation, the Central Commission found that former Ministry of Railways Mr. Liu Zhijun was related to these cases. In July 2013, Liu was given a suspended death sentence for accepting bribes and abusing his power.

11. Report Channel Special corruption cases with huge amounts or related to high-level officials will be reported directly to the Premier; after authorized by the Premier, these cases will be referred to anti-corruption agencies. some of these cases will be included in the Annual Audit Report to the National People's Congress and some will be go public by the Announcement of Audit Findings

12. Performance in the Prevention and Detection of Corruption Since the foundation of our office, more than 42 thousand corruption cases were referred to anti-corruption agencies. Subsequently, series of laws and regulations were strengthened. In recent fives years, CNAO has referrred more than 15 thousand fraud cases, and more than 780 billion yuan was saved;

13. Integrity and Competence of Auditors Integrity and Competence are the mindset of our auditors; Strong regulations and internal control; Guidelines on what to to on symptoms of corruption in newly updated Government Auditing Standards; A lifetime vocational education framework for auditors.

14. Anti-money Laundering in CNAO

15. Organizational Structure and Leagal Mandate Anti-money laundering is not a legitimate role of CNAO speicifed in the Constitution; in the ministry responsibility set by the State Council, it is stated that, fighting against money laundering is one of the functions of National Audit Office; Also, in the five year development strategy of our office, it is stated that, we should keep tracking of suspicious bank accounts through auditing, detectiong potential money laundering behaviours and summarying their new characteristics in time; No specific department was assigned for anti- money laundering tasks, but Monetary Audit Department takes the major role in this area;

16. Major Types of Audit Financial audit of monetary institutions; Accoutability audit of the leaders of monetary institutions; On-going audit according to the current year's work of the government or the regulatory policies;

17. How the Work is Done? Mainly by digging and anlaysis of bank's transaction data: the transactions are analysed by National Audit office, and the clues are verified by our 18 resident offices; When the red flag is discovered and primarily verified, it will be referred to the anti-money laundering bureau of the people's bank of china (Central Bank)

18. Performance in Anti-money Laundering Activities Referring valuable crime clues to the AML agency (Central Bank),involved over one hundred billion Yuan (recent years).

19. Thank you !