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No. 12 of 2014 (General Serial No. 186):Audit Findings of the Financial Revenues and Expenditures of China Aerospace Science and Industry Corporation
2014-07-08日   Soure : :

In accordance with the provisions of the Audit Law of the People’s Republic of China, in 2013, the National Audit Office of China (CNAO) conducted an audit on the financial revenues and expenditures of China Aerospace Science and Industry Corporation (hereinafter referred to as CASIC) for the year 2012. The audit focused on CASIC’s head office and 6 of its affiliated units including China Aerospace Science and Industry Academy of Defense Technology, China Aerospace Science and Industry Academy of Flight Technology, Guizhou Aerospace Industry Co., Ltd. (hereinafter referred to respectively as Academy of Defense Technology, Academy of Flight Technology, Guizhou Aerospace Company) and others, and conducted extended audits on relevant matters.

I. Background and Audit Evaluation

CASIC was established in July 1999, with a registered capital of 7.203 billion yuan. It has 11 wholly owned and controlled second level subsidiary companies and 10 institutional units, is mainly engaged in development and production of missiles, spacecraft and other defense materiel, as well as the manufacturing of communications and electronic equipment, specialized vehicles and parts, etc.

As shown in its consolidated financial statements, at the end of 2012, CASIC had total assets of 161.474 billion yuan, total liabilities of 92.803 billion yuan, total owners' equity of 68.671 billion yuan, current year operating income of 133.768 billion yuan, net profit of 7.599 billion yuan, asset-liability ratio of 57.47%, and 10.79% return on equity.

RSM China Certified Public Accountants audited the Group's consolidated financial statements for the year 2012 and issued a standard and unqualified audit report.

The CNAO’s audit findings showed that, CASIC was able to implement the state’s macroeconomic policies, actively promote reform and restructuring and product structure adjustment, and its financial statements for the year 2012 relatively truly reflect the overall corporate financial position and operating results. The audit also found that CASIC had problems of inaccuracies in accounting of some revenues and costs, insufficient offset in the consolidated financial statements, inadequate implementation of internal control systems, etc.

II. Major Problems Discovered in the Auditing

A. Problems in accounting and financial management.

1. In 2012, 28 of its affiliated units including the Academy of Defense Technology, Hunan Aerospace Administration and Academy of Flight Technology had problems of creating fictitious purchasing and sales business, imperfect accounting of research revenue and interest income, duplicate withdrawal of guarantee bonds and other issues; overstated 24 million yuan of revenues, overstated 281 million yuan of costs, resulting in understating 257 million yuan of profits.

2. In preparing the consolidated financial statements for the year 2012, CASIC failed to fully offset internal transaction items, resulting in simultaneously overstating 441 million yuan of both revenues and costs.

3. In 2012, without submitting to the SASAC for review and examination in accordance with provisions, CASIC approved its affiliated unit to increase 30 million yuan of investment in Guizhou Aerospace Real Estate Development Co., Ltd.

4.In 2012, its affiliated Henan Aerospace Industry Corporation using fictitious invoices extracted and deposited off the books 3 million yuan of funds, of which 1.411 million yuan was used to issue "key work completion appraisal awards" to mid-level leadership and some cadres; from January 2012 to April 2013, Beijing Power Machinery Institute using fictitious contracts extracted and deposited off the books 2.6925 million yuan; from early 2012 to May 2013, the Academy of Flight Technology and units affiliated with the Academy of Defense Technology accepted fictitious invoices provided by outside suppliers and outsourcing units to charge 77.2909 million yuan of expenditures.

5. As of June 2013, its affiliated Aerospace Information Co., Ltd. (hereinafter referred to as Aerospace Information Company) failed to clean up 4.9406 million yuan of commercial pension insurance. In addition, in 2012, the Aerospace Information Company’s affiliated Zhejiang Aisino Aerospace Information Co., Ltd. under-withheld and under-paid 417,700 yuan of personal income tax.

B. Problems in internal management.

1. The "Management Measures regarding Quality Bond Accounts" developed and implemented by CASIC in 2003 failed to make unified provisions regarding the basis, scope and retention period for withdrawal of quality bonds, leading to large arbitrariness in implementation by its affiliated units.

2. Aspects regarding the Group’s management and control over its affiliated enterprises.

(1) As of the end of July 2013, the general manager of the Government Affairs Department, Huadi Computer Group Co., Ltd., a subsidiary of CASIC’s affiliated Aerospace Information Company, irregularly held 41% of shares of a subordinate unit.

(2) From 2008 to 2012, CASIC’s affiliated enterprises loaned 126 million yuan to Guizhou Aerospace Hongguang Machinery Manufacturing Co., Ltd.; due to the latter’s serious operating deficits, there is a risk of loss.

(3) In August 2010, its affiliated Guizhou Aerospace Company’s subsidiary Guizhou Aerospace Tianma Mechanical-Electrical Technology Co., Ltd. irregularly made external loans in the name of trade, resulting in contingent losses of 21.4548 million yuan.

(4) As of the end of 2012, its affiliated Academy of Defense Technology’s subsidiary Nanjing Changfeng Aerospace Electronics Technology Co., Ltd. irregularly made 250 million yuan of external loans in the name of project cooperation.

3. The management system for information systems construction is imperfect; according to the existing system, the Group Company is only responsible for organizing the construction of the Group's information system, construction of most of the information systems is not within the scope of approval by the Group Company; as of the end of 2012, CASIC had 606 various information systems, quite dispersed, and not conducive to coordinated construction and data sharing of information systems; the data interfaces of the 6 financial software systems used by its affiliated units failed to meet national standards or industry standards.

III. Audit Measures and Rectification

With respect to the audit findings, the CNAO in accordance with law has submitted an audit report. CASIC has carried out rectification of the issues regarding financial revenues and expenditures during the audit; it will announce the specifics of its rectification to the public. Leads to suspected economic violations of law and discipline by relevant personnel found in the audit have been transferred to relevant departments for further investigation.