Contract under the Government Auditing Regulation, "repeated the trial repeat offenders," Analysis

[Abstract] regulatory perspective from the contract to build a "repeated the trial repeat offenders" model, through the central government and the differences between the various functional departments of the theoretical model parties' repeated violation of repeated trial, "the root causes, the path to government audit work and the government stabilizing mechanism of procurement contracts and found that the central government can not rely solely on budgetary mechanisms to effectively regulate the behavior of functions, and in some extreme cases, functional departments may even be illegal pursuit of high returns of the phenomenon, the accountability mechanism is not perfect in the case of , a more important role government audit the performance of the audit results announcement, through the "reputation mechanism" to play a regulatory role in the behavior of the functional departments, government procurement, investment has played a special role in stabilizing the central government and the functions of the contractual relationship.

[Keywords] contract regulation, repeated trial repeat offenders, the audit results announcement, government procurement, government audit
I. Introduction
"Repeated the trial repeat offenders" is a recent government audit of the outstanding problems encountered. "Repeated the trial repeat offenders" phenomenon has seriously affected the country's financial discipline and seriousness of the normative How to crack, "repeated the trial repeat offenders." the cycle has become the focus of attention by many Researchers on this issue audit theory have made their own insights, such as Jiang Daming and so on in the financial audit, "Synergetics" concept, for the relevant departments, through financial audit to establish and improve The internal control system, you can gradually ease the financial audit, "repeated the trial repeat offenders, repeat offenders repeated trial" problem [1]. Ouyang Watson, etc. through the analysis of budget execution audit evidence that the system is fLawed, "repeated the trial repeat offenders "The problem of institutional barriers, solve the" repeated violation of repeated trial "issue from the beginning to make up for institutional shortcomings [2]. Qixing Li from the play" immune system "function of the angle of" immune system "of prevention can change," repeated the trial repeat offenders, Repeated repeated the trial, "the vicious circle of state [3] Although more Research to solve China's" repeated trial repeat offenders' problems are constructive, but not from the system to analyze and explore the "repeated the trial repeat offenders," the mechanism and roots. Auditor-General Liu Jiayi has pointed out, "repeated the trial repeat offenders," the system issues   ① , so this paper intends to contract from the perspective of regulation, "repeated the trial repeat offenders" with a view to solve this problem provides a new way of thinking.

Essentially, the functions of government departments in government organizations in each division, with different functions, and by the central government budget allocated to function. The budget mechanism is functional link with the central government's Economic point, the role of the budget mechanism The play is to rely on <<Budget Law of the People's Republic>> (the <<Budget Law>> protection, but to ensure compliance functions of financial resources to use only <<Budget Law>> is not enough, you must also use administrative means of intervention, namely the establishment of government audit, government audit of budget implementation through oversight. On this basis, this regulation from the perspective of contract to build the appropriate governance model, the functional departments of the Central Government and repeat business   ②  on the basis of analysis of different cases, the central government and the functions and characteristics of the contracting process of the game, explore the "repeated the trial repeat offenders," root of the problem, the role of government audit and to resolve the path "repeated the trial repeat offenders" and other mechanisms.

Second, "repeated the trial repeat offenders" problem-based regulatory model contract
This article assumes that there is an Economic and a functional central government departments, there is a vertical relationship between them, in order to simplify the contracting model, assuming that the vertical relationship between the central government, functions and composition of financial capital and risk-neutral, each early stage, the budget through the audit functions using budgetary funds to exercise their functions, the functions of the central government special value, but may also be illegal to use financial resources to achieve other purposes. Obviously, compliance with financial resources have income belongs to the central government, illegal use of funds generated by income are functions of the department, and compliance with financial resources generated by the central government revenue is higher than the illegal use of financial resources functions benefits.

Functions at each stage choose an action vector  a = (a  1, a  2, a  3, ..., a  n)  T , cost of  c (a) , compliance in the operation use of financial resources the central government revenues  Q , illegal use of financial resources functions earnings  G . Moreover, the central government, the proceeds may be higher, as  Q  H , may also lower for  Q  L . Because there are many forms of illegal use of funds, resulting in the value of high and low points, assuming  Q  H> Q  L> G  H> G  L . This assumption is reasonable because the illegal use of funds can not generate the highest revenue compliance with financial resources than the minimum income high level of functional behavior affect the realization of income: to achieve  Q  H  probability  q (a ),  Q  L  achieve the possibility of  1-q (a) ,  G  H  realize the possibility of  p (a) ,  G  L  realize the possibility of  1-p (a) .

If the functions of a given action, the use of financial resources to achieve gains are conditional. Assuming  c (0) = 0, p (0) = 0, q (0) = 0 , the functions do not act, there is no cost and no opportunity to realize gains, so that Δ  Q = Q  HQ  L ; Δ  G = G  HG  L .

Central Government is satisfied that the best course of action functions  a  *  must meet the following formula to maximize the expected net proceeds after costs of action
 S  *= Q  L + q (a  *)  Δ  Qc (a  *) .

There is a crucial factor affecting the choice of action functional departments, namely the independence of the use of funds if the functions have independent authority to use funds that they can bargain and the central government, we know that, although the central government and functional departments in the political on the affiliation, but the budget through the audit, the use of budgetary funds on a relative independence, therefore, we assume that only action  a  functions he knows, is not observed variables, the action (also contains variable external conditions contracts state-contingent variables, it is impossible to perform the external addition, the central government and functional departments can be observed to achieve the  Q and G .

To simplify matters, assume that the action functional composition of two actions:  a = (a  1, a  2)  T ,  production possibility function number q (a) and p (a) are: q (a) = q  1a  1 + q  2a  2, p (a) = p  1a  1 + p  2a  2 .

Which,  q  1, q  2, a  1, a  2> = 0 . It contains two basic conditions: (1 single dimension to ( q  2 = p  2 = 0 , illegal use of financial resources to increase high-value ( G  H ) efforts, but also to increase the central government in terms of high value ( Q  H ) possibility (2 multi-task effort ( q  2 = p  1 = 0 . Here, the functions required to pay a greater cost impact value  G , and then there is no effect of  Q , so cooperation will be strictly to reduce the total surplus.

Third, the budget model of the mechanism of contract theory
(An architecture description
First, assume that there is no audit oversight, with "the central government budget mechanism + + functions" as the basic framework. To join the central government budget and the relationship between the functional departments of the government budget is the mechanism by way of contract work, among them despite the political has a strong dependence, but with relative Economic independence, the general functions of the department's budget approved, the budget funds the right to use is very clear in the budget implementation process, as long as the functions in accordance with the agreed budget matters of use of financial resources, central government intervention is rarely functional, so the functional departments in the use of financial resources have greater independence, and this independence makes this mode of public rental cost is very low. However, this model relies on only the annual budget. Annual budget is short-term contract, this contract period is short, easy to change, which functions to adjust more frequently due to breach of contract income is often higher than the cost of default, functions prone to the phenomenon of illegal use of funds short-term contract characteristics This model does not determine the stability and performance of risk due to bounded rationality, functions can not be expected to occur each year in all matters, fiscal year budget constraints of the functional departments of the actions the central government if the budget execution process carried out regular supervision, will have higher monitoring costs. In addition, the current budget mechanism of asymmetric powers and financial authority, insufficient budgets, which makes some of the smaller departments to bear too much financial power of powers and financial resources is very difficult, illegal had to do [4] Therefore, the mechanism is more difficult to budget constraints the current functions of the irregularities.

(B) governance
The architecture of governance is the budget in such a contractual relationship, the subject of both the objective function is not always entirely consistent, in the case of asymmetric information, opportunistic behavior if driven by a party, it is prone to moral hazard, which contractual relationship between the two sides decided to have a high inherent risk of the budget preparation after being reviewed will form a new agency relationship, the central government's purpose is to control administrative costs, improve administrative quality, and enhance the use of funds performance. functions has a right to the use of funds, may give more consideration to the interests of the agent, in this case the phenomenon of illegal use of funds will appear.

Links to free download http://www.hi138.com theory based on the foregoing analysis, the functional departments in the budget through the audit of compliance can choose to use financial resources, can also choose to illegal use of funds in the budget under the central government contracts and functions to Nash bargaining: the central government promised in the budget include illegal use of financial resources functions benefits  G  j , in order to obtain compliance with the central capital gains  Q  i  such as the Central Government is committed to functional departments build a new office building, so that functions do not detract from the private funds to build office buildings., so the actual central government revenues  Q  iG  j  2. functions of the proceeds  Q  i + G  j  2 -  c (a) , functional choice of action  a  ψ .

When Δ  Q  = 0, the functional departments of the central government's efforts can not benefit, and therefore the best effort level is zero, but the functions will be extended to the level of impact  G  j ,  G  j  because of the size of affect the functions of the Nash bargaining with the central government's revenue size of the result when Δ  G  and Δ  Q  are negative, the functions of the department may choose a wrong action: increase in pay on the income  G  greater level of effort, even if such efforts to  Q  no effect on the budget execution, the central government's total income:  Q  iQ  i + G  j2  =  Q  iG  j  2.

We use a model to reflect the operation of such contractual mechanism functions using budgetary funds in accordance with contract provisions, the cost of  ζ , and get paid by the central government's revenue  Φ , the central government to get high income and low income probability were  q (a) and 1-q (a) , the central government to obtain revenues:  ER1 = [1-q (a)] Q  L + q (a) Q  H-Φ . functional departments of the illegal use of budget funds,  ω  costs for the illegal use, and functions to achieve high returns and low probability of return were  p (a) and 1-p (a) , then functions to obtain illegal revenues:  ER2 = [1-p (a)] G  L + p (a) G  H-ω . Because monitoring costs are too high, the use of functional independence in the capital, assuming both central government and functional departments the fact that the observed irregularities, the Central Government is faced with the functional departments of the illegal actions have two options: either to accept the fact that illegal use of funds, functions of the proceeds of  ER2 , Central
Government revenue is 0. The second is accountability, the confiscation of illegal earnings functions, revenue functions into -  ω , but accountability is a cost, denoted by  υ . As the functions of the illegal income confiscated and not increase central government revenue, so the accountability, the central return
Figure 1 budget model contractual governance mechanisms
To -  υ .  ER1 and ER2  are expected return, we assume that compliance with either or illegal use of funds of funds are two situations, namely, to pay a larger effort to get greater benefits, or pay a smaller efforts have been small gains shown in Figure 1.

Accountability is a strictly inferior strategy, we can not consider it. When  ER  1> 0,  Φ-ζ> ER  2, the functions of compliance with balanced funds are the result of the game when  ER  1 <0,  Φ-ζ <ER  2, the functions illegal use of funds without accountability is the result of a balanced game. other circumstances not present a balanced game. In both cases more difficult to guarantee, which shows the functional departments and the central government budget contractual relationship instability. As a result, audit and supervision as the contract will generate additional forms of organization.

Fourth, the budget under the supervision of the audit contract theory model
(An architecture description
Under the supervision of budget execution audit approach is: first, the functional departments of the projected expenditures under the annual budget, the central government is to review, audit functions in accordance with the budget adopted by the amount of use of financial resources, and budget execution by the audit department audits, and audit results announcement.

In the Government's long-term management of the process, "repeated the trial repeat offenders," the problem has evolved into a game repeated game, we examine the contract to perform in the first  m  phase functions will choose to default. Functions of the current earnings of default options To  R , but in the later stages, the probability functions will  θ  lost the trust of the central government, and its loss is the period of loss  lost θ × (Φ-ζ) and the discounted value of PV = Σ  θ ×  (Φ-ζ) (1 + β)  t (β  discount rate for the time as long as enough  θ ,  β  small enough, there must be  PV> R , the cost of default is greater than the benefits . on balance, functional departments will choose compliance. This idea has been reflected in secular Theorem.

(B governance
Kreps (Kreps folk theorem is that "reputation mechanism" the result, he pointed out that under conditions of uncertainty, reputation is extremely important. The individual is willing and has a good reputation of the main body interaction [5] Therefore, a good reputation The functions in the political and Economic interests in the Central Government will meet the special care if the functions of the departments have chosen to breach of contract, its reputation value will drop rapidly after a longer period of functional departments should bear the losses thus caused. In the case of repeated games, the general will choose compliance functions, as the cost it takes to build reputation, you can get from the central government to make up.

Therefore, the lack of accountability mechanisms in the case of the current government audit of important governance mechanisms, the audit results announcement system, but it will affect the functions of the department's reputation, we can use mathematical models to describe the audit functions in the inhibition of opportunistic behavior role assumed by the central government announced the formation of information sharing results of the audit mechanism of action of each functional department can be understood by other functions. Thus, the audit department to play the most important functions is the reputation mechanism.

Functions may take opportunistic behavior  Si , such as the illegal use of financial resources due to audit results announcement, the central government's functional departments opportunistic behavior is very clear, and in accordance with these opportunistic behavior to the central government the size of the harm  Si  in descending order of the Central Government observed a series of signals  Di (i = 1,2, ..., m ), then Bayesian inference based on these signals, and thus functions to be divided, the division functions determined on the basis of income will be the central government to pay benefits to  Xi = f (Si ).

In the absence of shared information before the central government inferred probability:  P   1   i (Si | Di) = p (Si, Di)  Σ  mi = 1p (Si, Di) p (Di) (i ≠ 1 )
Functions to take opportunistic behavior  Si  expected return when:
 H = p  1  i (Si | Di) Xi + (1-p  1  i) X  -i , which, Xi = f (Si), X =  Σ  j ≠ if (Sj) n-1
In sharing information, the central government after the inferred probability:
 p  2  i (Si | Di) = p (Si, Di)  Σ  m-1i = 1p (Si, Di) p (Di) (i ≠ 1) 
In  i ≠ 1 , the obvious:   Σ  m-1i = 1p (Si, Di) p (Di) < Σ  mi = 1p (Si, Di) p (Di). 
If  i = 1, P  2 (Si | Di) = 1, p  1  i (Si | Di)> p  2  i (Si | Di ) was significantly established. Therefore,
 p  2  i (Si | Di)> p  1  i (Si | Di) for all i  set up this show, because the audit results announcement, the central government and the sharing of information between functional departments to increase,  p  i  increases. Therefore, if the central government can use the audit results announcement, opportunistic behavior of the smaller functions of the proceeds will increase opportunistic behavior will be reduced.

In fact, the results of our audit notice the lack of legal system the rigidity constraints, is still not perfect [6] The audit results announcement is to reduce the functions of opportunistic behavior, and  θ and β  two parameters did not reach the ideal state is far As previously stated, the ideal state is when  θ is large enough, β is sufficiently small to meet the PV> R,  choose compliance functions, "repeated the trial repeat offenders' problem no longer occurs in the course of repeated games, and only audit results announcement role into full play,  θ  trust the central government as the probability of loss will become large enough., "repeated the trial repeat offenders," the problem continues to occur, which means we need to consider other treatment.

Fifth, the budget of the government procurement contract theory model of intervention
(An architecture description
With private investment to maintain both a stable contractual relationship from the earliest ideas Williamson (Williamson. Williamson pointed out that in uncertain conditions, the face full of opportunism, there is a variety of complex transactions, transactions of modern Economic relations, but also need to design a transaction-specific high level of trading contracts, which is the so-called relational contracts. It is an informal contract to continue with the trading hours of the commencement of continuous trading and the amendment, thus effectively reducing the formal contract enforcement the transaction costs [7]. The most obvious feature of this contract is the contract the two sides as far as possible by means of their unique knowledge advantage to deal with the information environment [8] Therefore, KlEin (Klein considered by the courts to enforce contracts and not always an effective way, is an effective way to provide for an automatic two parties to fulfill the scope of compliance costs by leaving the two parties to fulfill contract automatically [9]. Links to free download http: / / www.hi138.com specific investments by the central government to suppress the functions of the violations. government procurement was originally designed to introduce market competition mechanism, but the government procurement process to see, it played the role of private investment. This is because the various government departments to purchase must be approved by the Government Procurement Center procurement, but not free to purchase on their own, that achieve the budget by specific investment-specific due to the presence of government procurement, functional use of the budget funds, transferring funds flow options from the perspective of the functional departments, they are worried about whether the government procurement to the satisfaction of the right price to buy the product. For the government, they are worried that government procurement of goods whether it is functional departments need order suppression of both opportunistic motives, both to maintain the long-term deal, specificity is very important. 
(B governance
Private investment is assumed to achieve through government procurement, government procurement budget is the specific nature of governance mechanisms, but the government procurement is a cost, namely, to maintain the normal operation of government procurement of inputs for the  Z , and assumes  Z  as sunk costs. Assuming the existence of a government procurement central government revenue function  φ = φ (Z ), mainly to ensure that the revenue budget dedicated, so that the government access to social benefits. This assurance needs of government procurement in the human, material and financial investment on the and put more and more to ensure that the special nature of the budget, the government greater access to social benefits, so the function of the cost of  Z  monotone increasing function returns zero in the absence of procurement, ie  φ (0) = 0, φ '(Z)> 0, φ "(Z) <0 . Meanwhile, there is a functional limitation violations of government procurement function  η = η (Z) , maintain greater investment in government procurement operation, restrictions on the functions of the greater non-compliance, so the function the same as the cost of  Z  monotone increasing function, restricted to zero in the absence of procurement, ie  η (0) = 0, η '(Z)> 0, η "(Z) <0 . The limit function is mainly used for functions, when illegal use of financial resources, to reduce the functional benefits. Compared with the previous game, Figure 1 changes the value of the payment, payment results:  (Φ-ζ, ER  1 '; ( ER  2',-Z, (-ω,-υ-Z .

One  ER1 '= [1-q (a)] Q  L + q (a) Q  H-Φ + φ-Z ,
 ER2 '= [1-p (a)] G  L + p (a) G  H-ω-η .

Government procurement, the government changed the expected benefits to achieve the functions of the department's compliance with funding conditions for a balanced game :  Φ- ζ> ER2 'and ER1'>-Z. These two conditions than ER1> 0 and Φ-ζ> ER2  easier to achieve, so we found that as the emergence of government procurement, contracts become more stable and higher procurement costs, the greater the specific budget, contract stability will be.

VI Conclusion
This regulation perspective in the lease-depth analysis of the "repeated violation of repeated trial," the internal mechanism, resulting in the following main conclusions:
First, the central government can not rely solely on budgetary mechanisms to effectively regulate the behavior of functions, functions and even in some extreme cases, violations will be the pursuit of high returns of the phenomenon. Second, the accountability mechanism is not perfect in the case of government audit by "reputation mechanism" to regulate the behavior of objective functions. Third, government procurement, investment has played a special role in stabilizing the central government and the functions of the contractual relationship.

"Repeated the trial repeat offenders" is a system issue, China's current budgetary mechanisms and inadequate audit results announcement system common cause, "repeated the trial repeat offenders." Refuted in this article, "repeated the trial repeat offenders" on the weakening of the government audit function view, stressing the important role the current government audit means the audit results announcement system, the audit authority should improve the audit results announcement system, and strengthen the enforcement of audit results announcement. In addition, this paper will draw on Williamson's idea of ​​government procurement as a dedicated investment analysis showed that strict implementation of government procurement will reduce the "repeated violation of repeated trial," the likelihood.


References:
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[2] Ouyang Hua-sheng, Liu Yu, Xiao Xia. China's central departments, budget execution audit analysis: Characteristics and Implications [J]. Audit and Economic Research, 2009 (2:2834.

[3] Qixing Li. "Immune system" On the subject of audit independence and reconstruction of the theoretical system [J]. Audit and Economic Research, 2009 (2:1422.

[4] Liu Xiangsi based on the institutional level where the financial risk of the causes of dialysis [J]. Local government research, 2007 (8:2528.

[5] Kreps D, Wilson R. Reputation and imperfect information [J]. Economic Theory, 1982,27 (1): 253279.

[6] Hu Jianguo. China's current national audit system problems and countermeasures [J]. Audit and Economic Research, 2008 (3:1417.

[7] Williamson J. Credible commitments: using hostages to support exchange [J]. American Economic Review, 1983,73 (4): 519540.

[8] George B, Rorbert G, Kevin J. Relational contract and the theory of the firm [J]. The Quarterly Journal of Economics, 2002,117 (1): 3984.

[9] KlEin J. Borderlines of Law and economic theory: transaction cost determinants of unfair contractual arrangements [J].  American  Economic Review, 1980,70 (2): 356362.


A Research on "Offending Despite Repeated Auditing"
Based on Contractual Rules
MA Yiqun   1,2 , HUANG Bulong   2 , SHI Anna   1 
(1. Jiangsu Audit Institute, Nanjing 210009, China; 2. School of Business, Hohai University, Nanjing 210098, China) 
Abstract: We have built up a model of "offending despite repeated auditing". By using the different theoretical models between the Central Government and its different functionary departments, we analyzed the causes for the practice of "offending despite repeated auditing", the effective path of government auditing and the mechanism of government procurement. We come to the conclusion that, firstly, the Central Government is failing to effectively regulate the behaviors of departments except for the budget, in some extreme cases departments will profit high illegal earnings; secondly, in the case of lack of accountability mechanism, government auditing plays an important role in the announcement of auditing results as a regulatory functionthrough the system of commitment and responsibility; finally, government procurement brings a full play in the specialized investment and stabilizes the contractual relationship between Central Government and its subordinate departments.

Key Words: contractual rules, offending despite repeated auditing Links to free download http://www.hi138.com