Audit reveals more financial irregularities and fraud
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State-owned enterprises (SOEs) were once again thrown into a fresh image crisis over the weekend. The turmoil came after China's audit watchdog published irregular practices and disciplinary violations in the financial statements of 17 SOEs operating directly by the central government.
According to reports released by the National Audit Office on Friday, the irregular practices include overstating earnings, understating assets with improper accounting procedures, concealing information about investment activities overseas, evading taxes, excessive bonuses and forged invoices.
The office said in a statement on Friday inadequate investment decisions, which led to losses or potential losses of State-owned assets and improper management of their subsidiaries, are the key problems contributing to irregularities in the financial statements of these SOEs audited. Second and third tier SOEs were found to be guilty of the most infractions.
Sinosteel Corporation overstated 1.99 billion yuan ($306.48 million) of sales earnings between 2007 and 2009. The company was also found to have more problems related to investment overseas.
Sinosteel International Holding Co, a subsidiary of Sinosteel Corporation, failed to adequately report three investment projects overseas.
Provident Faith Investment, a subsidiary of Sinosteel International Holding Co, was found unable to recover 1.85 million yuan in overseas futures transactions made through overseas illegal futures brokers.
During the time when the company was charged with managing the capital of the Sinosteel Corporation overseas, Golden Prosperity
Development Co, another subsidiary of Sinosteel International Holding Co, withdrew large sums of cash to pay commissions to individuals.
The company also transferred part of the funds to the personal accounts of working staff in other parts of the group for daily expenditures for the institution.
Days before the audit report was released, the State-owned Assets Supervision and Administration Commission (SASAC) announced it would remove Huang Tianwen, president and deputy Party Secretary of the Sinosteel Corporation, from his position without giving details.
Other SOEs including the China Three Gorges Corp, China Unicom and China National Nuclear Corp were also found to have problems managing their funds.
The audit, conducted last year, once again threw into the limelight the SOEs who have long been made the target of public attacks due to their monopolies, high incomes and privilege.
A spokesman for the SASAC said Saturday they would increase transparency of SOE operations.
Wang Yukai, professor of governance at the Chinese Academy of Governance, said the irregularities and violations exposed problems in the governance of SOEs, making them hard to supervise.
"Besides, some SOEs' leaders are too eager to impress their supervisors by making instant profits through investments overseas during their tenure, but lack proper investment expertise," he said.
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