Home  -  Publications  -  Audit Reports  -  2012 > text
No. 16 of 2012(General Serial No.123): Audit Results of the Financial Revenues and Expenditures of Dongfang Electric Corporation for the year 2010
2012-06-01日   Soure : :

Audit Results of the Financial Revenues and Expenditures of Dongfang Electric Corporation for the year 2010

In accordance with provisions of the Audit Law of the People's Republic of China, in 2011, the National Audit Office (CNAO) conducted an audit on the financial revenues and expenditures of Dongfang Electric Corporation (hereinafter referred to as DEC), for the year 2010, and traced back to relevant years regarding major issues involved in the audit.

I. Overall Situation

DEC was established in May 1984 with a registered capital of 3.356 billion yuan. It has 12 wholly owned and controlled second-level enterprises, and is mainly engaged in the manufacture and sale of power generation equipment, power station project general contracting and sub-contracting, technology development and technology consulting for complete power generation plant, and sales of supporting machinery and electronics equipment. As reflected in its consolidated financial statements, as of the end of 2010, DEC had total assets of 100.158 billion yuan, total liabilities of 81.964 billion yuan, total owners' equity of 18.194 billion yuan, current year operating income of 44.621 billion yuan, and total profits of 2.773 billion yuan.

II. Audit Evaluation and Opinion

The audit focused on DEC headquarter and 9 of its affiliated enterprises, involving more than 50% of the total assets of DEC. The audit results show that DEC’s corporate governance structure has gradually been improved, its level of internal management continued to improve, its accounting information is basically a true reflection of the corporate financial position and operating results, but there were still some issues of irregularities in financial management and project management. The impact of these issues on the financial revenues and expenditures situation of DEC for the year 2010 are mainly as follows: understated 512 million yuan in assets, accounting for 0.51% of total assets; understated 79 million yuan in profits, accounting for 2.85% of total profits.

Regarding the issues identified in the audit, the CNAO in accordance with the law has submitted an audit report, issued an audit decision, and required DEC to carry out rectification.

III. Major Problems Identified by the Audit and their Rectification

A. Problems in accounting and financial management.

1.In 2010, its affiliated DEC Dongfang Boiler Co., Ltd. (hereinafter referred to as  Dongfang Boiler Ltd.) placed 123 million yuan of customer compensation payments it received in its current accounts; net of related costs, understated 59 million yuan in profits.

After the audit noted the above problem, the company carried out the revenues and profits in accordance with provisions, and paid back taxes based on the increased profits.

2. From 2008 to 2010, DEC headquarter and 5 of its affiliated enterprises overpaid 65.8151 million yuan of housing fund on behalf of workers in excess of the state stipulated ratio, in which 18.9011 million yuan was overpaid in 2010.

After the audit noted the above problem, DEC lowered the withdrawal ratio of employee housing fund in accordance with provisions.

3. DEC opened separate accounts to deposit the enterprise annuity, retiree career development fund and other funds under its management, and accounted these off the statutory financial account books. As of the end of 2010, these had reached 512 million yuan.

After the audit noted the above problem, DEC carried out rectification, and included the above funds within its books for accounting.

4. From 2005 to 2011, six of its affiliated enterprises including Dongfang Electrical Machinery Factory and others underpaid a total of 5.7381 million yuan in taxes.

After the audit noted the above problems, the relevant enterprises paid to the tax authorities the taxes due.

B. Problems in matters of major economic decision-making.

1. The polycrystalline silicon project that its affiliated DEC Emei Semiconductor Materials Co., Ltd. (hereinafter referred to as the Emei Company) invested 1.833 billion yuan to build, but it failed to meet industry access criteria, failed to fully pass environmental protection acceptance, and had problems of low capacity utilization rate, low product quality acceptability rate, etc., and serious operating losses.

After the audit noted the above problems, DEC imposed notice of criticism and economic sanctions on main persons responsible, and through technological innovation to impel the Emei Company to become one of the first enterprises to attain the polycrystalline silicon industry access criteria; the environmental protection acceptance formalities are being carried out.

2. DEC’s "going abroad" strategy implementation model is relatively simple, project performance is suboptimal.

After the audit noted the above problems, DEC studied and established a "going abroad" road-map and timetable, classified and implemented objectives and responsibilities, and studied to set up an organizational system and control mode in line with reality, and increased efforts to train composite type international talent.

C. Problems in internal management.

1. From April 2009 to June 2011, its affiliated Emei Company Leshan branch handed over 28,900 tons of hazardous waste silicon tetrachloride to a private enterprise without processing capacity to process.

After the audit noted the above problem, DEC through process improvement increased the silicon tetrachloride recycling rate, while strengthening the review and follow-up inspection on the qualification of silicon tetrachloride processing enterprises.

2. As of the end of 2010, the investment amount on 4 projects of its affiliated DEC Dongfang Steam Turbine Co., Ltd. (hereinafter referred to as the Dongfang Steam Turbine Company) including the production services building, etc., exceeded the state approved amount by 269 million yuan.

In tackling the above problems pointed out in the audit, Dongfang Steam Turbine Company is applying to the department in charge to adjust the investment scale, and at the same time the Company has revised the management measures for fixed assets investment.

3. As of the end of 2010, the investment in one-year certificate treasury bonds by its affiliated DEC Finance Co. Ltd. accounted for 146% of the latter’s total capital, going beyond the state’s provision regarding short-term investments in securities that no more than 40% of total capital be allowed.

After the audit noted the above problem, DEC increased the capital of the relevant company, and lowered the investment ratio in accordance with provisions.

4. From 2003 to 2007, its affiliated Dongfang Boiler Group Co. Ltd. supplied boilers to 4 unauthorized or irregularly constructed power stations, and failed to collect in time part of the payment for the boilers. As of September 2011, 353 million yuan was not cleared up and retrieved yet.

After the audit noted the above problems, Dongfang Boiler Group Co. Ltd. increased payment collection efforts, and has recovered 50 million yuan of funds, while requiring careful verification of the regularity of relevant tendered projects when contracting business in the future, and through contract terms control receivables risk.

5. From May 2007 to the end of 2010, its affiliated Dongfang Steam Turbine Company in violation of tender provisions procured 1.563 billion yuan of goods from 6 private enterprises; from 2009 to 2010, its affiliated Dongfang Boiler Group Co. Ltd. in violation of tender provisions procured 102 million yuan of testing equipment, etc.

After the audit pointed out the above problems, DEC developed and perfected 3 regulations including the rules for implementation of wind power materials procurement management etc., increased efforts in training of business personnel, to further regulate the procurement process.

6. From 2008 to June 2011, its affiliated Emei Company’s 120-megawatt solar photovoltaic industry project failed to fulfill tender procedures but signed a construction contract of 66 million yuan.

After the audit noted the above problem, DEC strengthened control of the tendering behavior of its affiliated enterprises, requiring that its affiliated enterprises stringently implement tender provisions.

7. From May 2007 to April 2010, its affiliated Dongfang Boiler Co. Ltd. Engineering Branch Company, with only B-level qualification, undertook to build 70 sets of denitration equipment for power generation boilers above 100 megawatts, which only enterprises with A-level qualification are in a position to undertake, for a total price of 2.811 billion yuan.

After the audit noted the above problem, DEC carried out a review of projects undertaken beyond qualifications, to ensure that project design meets requirements and avoid major hidden hazards.

8. Some of its major affiliated subsidiaries have not yet connected into DEC’s ERP system; off-site disaster recovery system has not yet been established; some functionalities of its information system are imperfect; some supplier information was directly entered into its ERP systems without being subject to review and approval.

After the audit pointed out the above problems, DEC included its off-site disaster recovery system in the annual investment plan, and set about the reconstruction of the network and computer room, and continued to improve its capabilities through implementation of the phase 2 ERP plan.

In addition, in March 2004 and March 2005, treasury bonds purchased by its affiliated Dongfang Boiler Co. Ltd. were illegally pledged by the trustees, and subseqently due to bankruptcy and liquidation of the trustees, resulting in an expected loss of 165 million yuan. After this was noted in the audit, DEC strengthened the centralized management of the funds of its affiliated enterprises, while actively cooperating with the judiciary authorities in taking measures to recoup the losses as much as possible.