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No. 5 of 2014 (General Serial No. 179): Audit Results of the Assets, Liabilities, Profits and Losses of China Investment Co., Ltd. for the Year 2012
2014-05-28日   Soure : :

In accordance with the provisions of the Audit Law of the People’s Republic of China, from May to September 2013, the National Audit Office of China (CNAO) conducted an audit on the assets, liabilities, profits and losses of China Investment Co., Ltd. (hereinafter referred to as CIC) for the Year 2012. The audit focused on its overseas investment, its affiliated Central Huijin Investment Co., Ltd. and 7 of its controlled (or joint stock) enterprises, namely: China Construction Bank Investment Co., Ltd., CIC Development Co., Ltd., China Galaxy Financial Holding Co., Ltd., Guotai Jun’an Securities Co., Ltd., China Galaxy Securities Co., Ltd., CIC Investment Trust Co., Ltd. and Guotai Fund Management Co., Ltd. (hereinafter referred respectively to as Huijin Co., CCB Investment, CIC Development, Galaxy Holdings, Guotai Jun’an, Galaxy Securities, CIC Trust and Guotai Fund), and made necessary extensions regarding significant matters within the scope of the audit.

I. Background and Audit Evaluation

CIC was established in September 2007; it is a state-owned company. As shown in CIC's consolidated financial statements, at the end of 2012, CIC had total assets of U.S. $575.178 billion, total liabilities of $79.261 billion, owners’ equity of $495.917 billion; current year realized investment gains of $83.052 billion and a net profit of $77.399 billion.

The audit results show that, since its establishment, CIC has continuously established and improved the investment regime, actively expanded channels and ways to use foreign exchange reserves, and a diversified investment situation has been initially formed; domestically, it has mainly given play to the investor representative duties of Huijin Co., and actively promoted the restructuring of state-owned financial institutions. However, the audit also found that there were some issues of irregularities in CIC’s overseas investment management and risk control, and in its domestic affiliated enterprises and financial management.

II. Major Problems Discovered in Auditing

A. Overseas investment management is not up to norm, some resulting in losses or risk of losses. From 2008 to 2013, among CIC’s overseas investments, 6 projects with losses, 4 projects with floating losses and 2 projects facing the risk of loss had problems of dereliction of duty on the part of managers, lack of in-depth due diligence and inadequate post-investment management, etc.; some other projects had problems of inadequate regularization in hiring external managers and failure to timely appoint managers, etc.

B. Inadequate control of domestic institutions; problems of irregular operations exist in some institutions.

1. In 2011, Huijin Co. failed to carry out asset evaluation in accordance with provisions, and transferred at cost its equity holdings in Guotai Jun’an, receiving 1.262 billion yuan less in deserved revenue.

2. Serving as CIC’s urbanization investment platform, CIC Development’s operations are positioned mainly towards primary level land development, but in actual operation it carried out a large number of secondary development; as of the end of March 2013, it had invested a total of 8.282 billion yuan for real estate development.

3. The State Council required CCB Investment to transform towards industry, but from 2009 to 2012, CCB still invested large amounts of funds into real estate and finance; investment in industry accounted for only 33%. Moreover, the Company in 2011 failed to carry out asset evaluation in accordance with provisions, and purchased 296 million shares of Shanghai Banking Corporation.

4. In 2012, Galaxy Holdings failed to carry out asset evaluation in accordance with provisions, and sold off 629 million shares of Galaxy Securities.

5. Since 2011, CIC Trust issued 949 million yuan of trust financing to real estate projects with incomplete "four certificates", of which 349 million yuan occurred in 2012.

C. Relatively weak in financial management and irregularities in the management of some revenues and expenditures accounts .

1. Funds recovered by CIC from some of its private equity investment funds failed to be included in the statutory books for accounting; and as of the end of 2012 resulted in U.S. $10,040,000 of off-the-books funds.

2. Between 2011 and May 2013, after having paid for basic medical insurance and purchased supplementary medical insurance for its employees, CIC also purchased major illness commercial insurance for individual employees under their actual names and paid personal income tax on their behalf, totaling 36.8973 million yuan, of which 13.5068 million yuan occurred in 2012.

3. In 2012, CIC paid out U.S. $8,773,100 in intermediary fees in violation of internal procedures or without bases for related business.

4. As of the end of 2012, CIC had 66 dormant bank accounts which failed to be cleared up in time.

5. As of the end of 2011, Huijin Co. had 2.492 billion yuan of equity transfer income receivable which failed to be included in the accounts, but only disclosed in the notes to the financial statements.

6. Since 2010, Guotai Fund used false invoices to extract 43.3004 million yuan of funds, and used it off the books to pay sales staff incentives, of which 17.9325 million yuan occurred in 2012.

In addition, CIC also had problems of laxity in personnel management and implementation of the accountability system, weak management of information systems, inadequate prudence in accounting policies for overseas investment, and inadequate employee compensation mechanisms, etc.

III. Audit Measures and Rectification

With respect to the audit findings, CIC is organizing and carrying out rectification; it has formulated or revised 29 work systems and business processes, improved 7 work mechanisms, and has dealt with relevant persons responsible. Specific rectification results will be announced by CIC to the public. Matters found by the audit relevant to alleged violations of law and discipline have been transferred to the relevant departments for further investigation.