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No. 10 of 2014 (General Serial No. 184):Audit Results of the Financial Revenues and Expenditures of China Nuclear Engineering Group Company for the Ye
2014-06-29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 Nuclear Engineering Group Co. (hereinafter referred to as CNEC) for the year 2012. The audit focused on CNEC’s head office and 7 of its affiliated enterprises including CNEC No.22 Construction Co., Ltd., CNEC No. 23 Construction Co., Ltd., CNEC Zhongyuan Construction Co., Ltd., CNEC Huaxing Construction Co., Ltd. and CNEC Investment Co., Ltd. (hereinafter referred to respectively as CNEC 22. CNEC 23, CNEC Zhongyuan, CNEC Huaxing and CNEC Investment), and conducted extended audits on relevant matters.

I. Background and Audit Evaluation

CNEC was established in July 1999, with a registered capital of 2.341 billion yuan. It has 9 wholly owned and controlled second level subsidiaries, is mainly engaged in military engineering construction, nuclear engineering construction, nuclear energy utilization, nuclear engineering technology research and services, and civilian engineering construction, etc.

As shown in its consolidated financial statements, at the end of 2012, CNEC had total assets of 35.872 billion yuan, total liabilities of 30.236 billion yuan, owners’ equity of 5.636 billion yuan, current year operating income of 30.695 billion yuan, net profit of 563 million yuan, asset-liability ratio of 84.29% and 10.94% return on equity.

BDO China Shu Lun Pan 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, CNEC was able to earnestly implement the state’s macroeconomic policies and decision-making arrangements, its financial statements for the year 2012 relatively truly reflected the overall corporate financial position and operating results. The audit also found that the Group had issues of relatively weak control of subordinate units, irregular financial management, inadequate system implementation, etc.

II. Major Problems Discovered in the Auditing

A. Problems in accounting and financial management.

1. In 2012, CNEC and 4 of its affiliated units: CNEC 22, CNEC 23, CNEC Huaxing and CNEC Zhongyuan, had problems of failure to timely confirm revenues, under-withdrawing production safety expenses, etc., and in total understated 373 million yuan of revenues, understated 340 million yuan of costs, resulting in understating 33 million yuan of profits.

2. In 2012, CNEC and 2 of its affiliated units: CNEC 22 and CNEC Investment, had problems of failure to timely enter assets into account books, irregular preparation of consolidated financial statements, etc., and in total understated 340 million yuan of assets and understated 220 million yuan of liabilities.

3. From 2012 to June 2013, some of CNEC Zhongyuan’s projects failed to be included in the statutory books for accounting, involving an amount of 115 million yuan.

4. In 2012, CNEC head office and 20 of its affiliated companies distributed 42.6116 million yuan of employee subsidies and bonuses in excess of gross payroll.

5. From 2011 to 2012, CNEC Huaxing’s Jiangsu Branch Company extracted 1.7538 million yuan of funds through inflating project quantities, etc., and used it mainly for payment of agency fees and hospitality expenses.

6. From March 2008 to May 2013, its affiliated CNEC Huaxing’s Hongyanhe Project Department irregularly paid 56.2833 million yuan of service fees and project costs in cash and other forms.

B. Problems in implementation of the state’s economic policies and corporate major economic decision-making.

1. From 2009 to 2012, in implementing the "going out" strategy, two overseas projects of its affiliated CNEC 22 had problems of irregular management such as paying compensation expenses to overseas branch company contractors without collective research and decision making, and without assessing the profit and loss, claims and debts of the overseas branch company, involving an amount 51.3118 million yuan.

2. From 2008 to 2013, 3 of its affiliated companies, namely: CNEC 22, CNEC 23 and CNEC Zhongyuan, in project construction and major materials procurement, had problems of failure to conduct public tender in accordance with provisions, changing the mode of tender without approval, and irregular tendering, etc., involving an amount of 836 million yuan.

3. From 2010 to 2012, its affiliated CNEC Investment made overseas investments without the Group’s approval, lending out funds totaling 856 million yuan; two non-core business investments failed to be submitted to the SASAC for examination and verification in accordance with provisions, involving an amount of 30 million yuan.

C. Problems in internal management.

1. With respect to CNEC’s management of financing and management of intangible assets, some key elements and necessary control links of the system provisions were imperfect; the procurement management system of its affiliated CNEC 22 was imperfect, with signs of laxity in supplier evaluation, irregular contract management, etc., in procurement management.

2. In 2012, in 37 civilian engineering projects of 4 of its affiliated companies, namely: CNEC Huaxing, CNEC 22, CNEC 23, and CNEC Huatai Municipal Roads and Bridges Engineering Company, there were signs of using contracting in place of management, involving contract amounts of 2.613 billion yuan.

3. In 2012, its affiliated CNEC Real Estate Development Co., Ltd. upon receiving 19 foreclosed homes offset 33.1 million yuan of claims without assessment.

4. With respect to the construction and operation of CNEC’s information system, there were problems of information systems being isolated and scattered, irregular management of software assets, and some systems being imperfect, etc.

III. Audit Measures and Rectification

With respect to the audit findings, the CNAO in accordance with law has submitted an audit report and issued audit decisions. CNEC 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.