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No. 17 of 2016 (General Serial No. 248): The Audit Results of the Financial Revenues and Expenditures of Aluminum Corporation of China for the Year 20
2017-06-08日   Soure : 【来源:International Cooperation Department】 :

No. 17 of 2016 (General Serial No. 248):

The Audit Results of the Financial Revenues and Expenditures of Aluminum Corporation of China for the Year 2014

In accordance with the stipulations of the Audit Law of the People’s Republic of China, in 2015 the National Audit Office (CNAO) conducted an audit over financial revenues and expenditures of the year 2014 of Aluminum Corporation of China (hereinafter referred to as CHINALCO). The audit focused on the headquarters of CHINALCO and four subunits including China Aluminum Co., Ltd., Yunnan Copper Industry (Group) Co., Ltd. (hereinafter referred to as China Aluminum and Yunnan Copper respectively), with the extension and tracing back to relevant items.

I. Overview

CHINALCO was founded in February 2001. The main business areas it engages in include mineral resources exploration, development and business, nonferrous metal smelting and processing, the relevant trade and engineering technique services such as survey and design,  general contracting of engineering construction, construction and installation, equipment manufacturing, technology development, consulting etc..

As shown in the consolidated financial statements, in the end of 2014, CHINALCO possessed 447 wholly-owned or holding subsidiaries and 124 joint stock companies. The registered capital of CHINALCO was RMB19.701 billion. CHINALCO had total assets of RMB486.449 billion, total liabilities of RMB430.855 billion, total owner’s equity of RMB55.594 billion, asset-liability ratio of 88.57%, current year business operating income of RMB279.854 billion. Net profit was RMB-21.216 billon, the return on equity was -34.38%, and the rate of the value maintenance and value increase of state-owned capital was 56.16%..

Baker Tilly Accounting Firm audited the consolidated financial statement of 2014 of the corporation entrusted by CHINALCO and issued an unqualified audit report with emphasis on certain matters.

The audit results conducted by the CNAO indicated that CHINALCO has transformed from single aluminum products company to an integrated polymetallic mining company,  has implemented enterprise management target responsibility system, market-oriented reform and operation transformation, has explored to improve corporate governance structure and has focused on the promotion of key fields. The results also demonstrated that some problems still existed in fields such as financial management and accounting, major decision-making and enterprise management, development potential and professional ethics of CHINALCO.

II. Major Problems Found in the Audit

(I) Financial management and accounting

u In 2014, CHINALCO didn't fully offset relationships and related transactions between affiliated enterprises in the consolidated financial statements, which resulted in an overstatement of RMB924 million assets, an overstatement of RMB721 million liabilities, an overstatement of RMB203 million owner’s equity, an overstatement of RMB151 million revenues, an overstatement of RMB134 million cost expenses and an overstatement of RMB16.2336 million profits.

u From November 2009 to December 2009, CHINACLO had falsely increased revenues and costs of current year by cycle marketing, which resulted in a loss of RMB40.6948 million in purchase and sale price difference of goods.

u In 2014, the subunit Yunnan Copper falsely increased RMB4,204 million  revenues and costs of current year by fabricating purchase and sale business, which resulted in a loss of RMB475,300 in purchase and sale price difference of goods.

(II) Decision-making and enterprise management

u In 2010, CHINALCO approved two enterprises’ sharing stocks of Coal Corporation, including the subunit Shanxi Aluminum Plant investing RMB542 million, without evaluation and due diligence investigation and the approval of the department in charge and irregularly provided bank loan guarantee for them. Because the capital chain of the other side was broke, it resulted in a risk of joint debt RMB448 million.

u In 2013, CHINALCO agreed to increase the independent directors and decrease the proportion of accredit directors and gave up the actual control of foreign equity investment without the approval of the department in charge, resulting in a change on accounting methods. Therefore, a profit of RMB811 million of affiliated enterprises was added.

u From 2010 to 2012, CHINACLO had approved the investment on two projects including the Inner Mongolia Alumina etc., without sufficient demonstrations. Afterwards, the construction and production had to be stopped because of the poor economic nature, resulting in a loss and a risk of loss of RMB1.146 billion.

u In 2008, CHINACLO purchased a company’s stocks through loan financing, which had resulted in RMB701 million of accumulated losses by the end of 2014.

u In 2010, CHINACLO participated in developing an iron project and failed to take control of the project resources to exercise efficient control influenced by the progression of its partner’s main project. CHINACLO had had to bear RMB 390 million of the interest fees by the end of 2014 added by the project’s delay.

u In 2006, CHINACLO helped its partner to obtain 989.8 mu of land by the way of bid-rigging, 226.8 mu of which was purchased with RMB56.70 million for the construction of staff training center project. In 2013, the land was returned and land fees and compensation were also recovered.

u Problems existing on management of affiliated enterprises and shares holding companies:

ü 3 enterprises including the subunit Gunagxi Branch of China Aluminum failed to complete the de-nitration project on schedule, therefore, in 2014, exceeded their emission limit of pollutants such as Nitric Oxide by 2157.1 tons.

ü By the end of 2014, three enterprises including the subunit Guizhou Branch of China Aluminum had begun the construction of relevant projects without obtaining the approval of construction land, involving a land area of 1,289.79 mu.

ü By August 2015, the shantytowns transformation task of the subunit Shanxi Carbon Factory had not been included in local plan for implementation because the preliminary work was not in place.

ü In 2006, the subunit Chongqing Branch of China Aluminum invested in the construction of a 800,000-ton alumina project. By the end of July 2014, it had generated a loss of RMB4.939 billion due to such reasons as poor quality of ore grade, high sulfur, and marketing and management factors.

ü In 2011, the subunit China Aluminum approved the investment in construction of Xinjiang coal power aluminum project without sufficient demonstration. Afterwards, the construction had to be stopped because overcapacity was compressed and other reasons, resulting in an investment of RMB92.8874 million in face of potential risk of loss.

ü In 2010, the subunit Hong Kong Co., Ltd of China Aluminum established a letter of credit without the approval of the superior company, which involved RMB20.1927 million. In 2011, the company purchased bauxite minerals without evaluation and verification of resources reserves. Afterwards, the project stalled because of imprecise resource reserves, resulting in investment and bank loan of RMB193 million in face of a potential risk of loss.

ü In 2013, the subunit International Co., Ltd of China Aluminum invested in a copper project. The fact that the mineral surface stripping quantity did not meet the design requirements resulted in an additional increase of RMB442 million in costs during the trial production period.

ü In May 2011, the subunit Guizhou Branch of China Aluminum purchased 80% stock right of a coal mine without evaluation. By the end of 2014, it had paid RMB234 million of purchase money.

ü In July 2013, the subunit Guizhou Mining Co., Ltd of China Aluminum approved of a shareholding corporation purchasing stock right of five coal enterprises without approval of the superior company. By the end of 2014, it had paid RMB319 million of purchase money.

ü From 2011 to 2013, two enterprises including the subunit International Trade Co., Ltd of China Aluminum had delivered goods and paid in advance irregularly failing to abide by contracts or the requirements of the superior company, involving RMB234 million.

ü In 2014, the subunit Huazhong Copper Industry Co., Ltd of China Aluminum provided convenience irregularly to other enterprises to carry out false factoring business, resulting in a capital risk of RMB215 million which needed to be paid to the bank.

ü The subunit Yunnan Copper failed to clean up two off-book companies, involving ledger assets of RMB10.845 million.

ü From 2012 to 2014, two shareholding subunit companies had offered RMB5.365 billion of external guarantee, among which RMB3.172 billion were offered in 2014. A shareholding company had borrowed high-interest loans from other enterprises for a long time. By the end of June 2015, the remaining balance had been RMB169 million.

ü From 2010 to 2013, the subunit Henan International Trading Co., Ltd of China Aluminum had irregularly carried out factoring business of accounts receivable for eight enterprises, By the end of June 2015, the accumulated financing had been RMB4.606 billion.

ü From 2012 to 2014, three enterprises including International Trading Co., Ltd had irregularly lent money to others, prepaid for construction and received consigned loan, the amount of which were RMB3.704 billion in total, among which the amount of 2014 was  RMB1.041 billion. By June 2015, RMB986 million overdue had not yet recovered.

ü From 2007 to 2012, four enterprises including the subunit Chongqing Branch of China Aluminum had failed to conduct public bidding for three projects in accordance with the stipulations or the management of public bidding had been irregular, involving RMB 687 million.

u In the field of information construction, by October 2014, the headquarters of CHINALCO and over 80 of its subsidiary enterprises had had problems as follows: the financial information system did not achieve interconnectivity, part of information system was idled and unauthorized for access, the financial information system did not have the data interface which met the requirements of national standard, Disaster Containment Center couldn't provide continuous service etc..

(III) Development Potential

u From 2011 to 2014, the proportion of investment in science and technology of CHINACLO had been1.56%, 1.82%, 1.31%and 1.13% respectively, and the proportion of R&D investment had been 1.33%, 1.32%, 0.76% and 0.68% respectively, which saw a rather large gap from the requirements of 2.5% and 1.8% of supervisory departments.

u By April 2014, RMB97.235 billion assets of CHINACLO had been of poor quality, including assets of enterprises which had been in loss for three years consecutively or whose asset-liability ratios were more than 85%, main business assets idled for more than two years and assets of halted production remaining to be disposed of halt assets or assets which needed clearing.

(IV) Professional ethics

u From 2012 to 2014, two units including the headquarters of CHINACLO and its subsidiary Yunnan Copper had irregularly purchased 14 high-grade official cars, which totally amounted to RMB6.5444 million, among which a car of RMB380,000 was purchased after the central government’s Eight Rules was introduced.

u From 2013 to 2014, four units including the subunit Henan International Trading Co., Ltd of China Aluminum had irregularly listed RMB1.3448 million of costs of high- grade alcohol and tobacco etc., among which RMB193, 200 of costs were listed in 2014.

u From 2009 to 2011, two enterprises and their subsidiaries including the subunit Yunnan Copper had irregularly disbursed RMB5.8817 million of leadership salaries.

u From 2012 to 2013, the subunit International Trade Co., Ltd of China Aluminum had called two meetings in excess of the standard, whose total cost amounted to RMB5.7623 million.

u By June 2015, forty-seven party members and cadres above mid-level of the subunit Guiyang Aluminum Magnesium Design and Research Institute Co., Ltd had irregularly held RMB2.5782 million stocks of ESOP companies.

u In 2006, CHINACLO failed to clean up, rectify and report the reform of enterprise monetized housing distribution. Two leaders of the company were spot checked and found to have irregularly obtained housing subsidies, amounting to RMB2.4161 million in total.

III. Audit Disposal and Rectification

In regard to issues discovered through auditing, the CNAO has issued audit report and released letters of audit decisions in accordance with laws, and CHINACLO will notify the general public of the details of straightening and rectification.

Clues related to issues in violation of laws and disciplines discovered through the audit have been transferred to departments concerned for further investigation.