Home  -  Publications  -  Audit Reports  -  2014 > text
No. 16 of 2014 (General Serial No. 190): Audit Results of the Financial Revenues and Expenditures of China Datang Corporation for the Year 2012
2014-08-27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 Datang Corporation (hereinafter referred to as Datang Group) for the year 2012. The audit focused on Datang Group’s head office and 10 of its affiliated enterprises including Datang International Power Generation Co., Ltd. (hereinafter referred to as Datang International) and others, and conducted extended audits on relevant matters.

I. Background and Audit Evaluation

Datang Group was established in December 2002, with a registered capital of 18 billion yuan. It has 29 wholly-owned and controlled second-level subsidiaries and branches, is mainly engaged in the development, investment, construction, operation and management of electric power, the organization of power (heat) production and sales and new energy development, etc.

As shown in its consolidated financial statements, at the end of 2012, Datang Group had total assets of 655.936 billion yuan, total liabilities of 572.928 billion yuan, total owners' equity of 83.008 billion yuan, current year operating income of 191.798 billion yuan, net profit of 3.702 billion yuan, asset-liability ratio of 87.35 % and 4.83% return on equity.

Baker Tilly 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, Datang Group was able to earnestly implement the state’s macro-economic policies, decisions and arrangements, actively promote energy conservation and emission reduction and strengthen internal management; its financial statements for the year 2012 on the whole relatively truly reflected the corporate financial position and operating results. The audit also found that Datang Group had some problems of irregularities in accounting, business decisions, internal management, etc.

II. Major Problems Discovered in the Auditing

A. Problems in accounting and financial management.

1. In 2012, 5 of Datang Group’s affiliated units including China Datang Technologies & Engineering Co., Ltd. and others had problems of recording as a one-time non-operating income financial subsidy funds that should be credited as deferred income, failure to promptly withhold depreciation of fixed assets that have been put into production, etc., in total overstating 75 million yuan in revenues, understating 115 million yuan in costs, resulting in overstating 190 million yuan in profits.

2. In 2012, the consolidated financial statements of Datang Group was prepared irregularly, overstating revenues by 2.598 billion yuan, overstating costs by 2.604 billion yuan, resulting in understating profits by 6 million yuan.

3. From 2011 to 2012, 3 of its affiliated units including Datang Xiangtan Power Generation Co. Ltd. had problems of failure to enter into the account books in a timely fashion the surplus materials from project construction, irregular preparation of consolidated financial statements, etc, overstating 34 million yuan in assets and overstating 48 million yuan in liabilities.

4. From 2011 to 2012, its affiliated Datang Tongzhou Technology Co., Ltd. and Datang International Fuel Company extracted 2.114 million yuan of cash to set up "private coffers" by fictitiously charging expenses for dispatching service personnel, and used it exclusively for issuing bonuses to members of the leadership team and middle management staff.

5. In 2012, Datang Group and its affiliated China Datang Technologies & Engineering Co., Ltd. in addition to gross payroll distributed 7.8862 million yuan of communication and transportation expense subsidies to employees.

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

1. From June 2011 to July 2012, its affiliated Sichuan Chuanhui Hydropower Investment Co., Ltd. irregularly provided power at low prices to high energy-consuming enterprises, enabling them to obtain 30.1618 million yuan of benefit in preferential electricity charges.

2. As of the end of 2012, 7 of Datang Group’s coal chemical and other non-core business investment projects had completed a cumulative 30.404 billion yuan of investment without submission to SASAC for review and approval.

3. Since December 2011, its affiliated Datang International irregularly expanded its non-core business of commercial real estate investments, and as of July 2013 had no real progress.

4. In 2010, its affiliated Datang International’s Hebei Fengning Wanshengyong Wind Farm with a planned total investment of 1.423 billion yuan began construction before being approved by the Development and Reform Commission; approval was only obtained in July 2011.

5. In 2012, its affiliated Datang International first provided 2 billion yuan of funds in the form of trusts for private enterprises to purchase coal mines, then in 2013, issued 4 billion yuan of mineral product investment funds in cooperation with private enterprises with the intent to buy back at a high price the coal mines they purchased. Datang International failed to report this matter to Datang Group.

6. In 2010, in the process of acquiring Inner Mongolia Baoli Coal Co., Ltd., its affiliated Datang International failed to carefully examine the evaluation report and other information provided by the intermediary, and overpaid 130 million yuan.

7. In 2012, its affiliated Datang International arbitrarily altered the usage of 5.25 billion yuan of debt investment funds; there is a risk of funds being taken back prematurely and assumption of penalties for breach of contract, etc.

8. From 2012 to 2013, its affiliated Datang International Fuel Company extracted 785 million yuan of credit funds through issuing bank acceptance bills with no real trade background.

9. Its affiliated Datang Jilin Power Generation Co. Ltd. Changshan Thermal Power Plant No. 1 Unit was only approved at the end of 2012, after completion of construction, and due to failure to build the supporting power transmission project, resulted in the assets being idle, and increases in financial expenses by approximately 479 million yuan.

10. In 2012, its affiliated Shunxing Coal Mine actually produced 1.6524 million tonnes of coal, exceeding the production capacity approved by the departments in charge by 1.0524 million tonnes.

C. Problems in internal management.

1. As of the end of 2012, its affiliated Sichuan Branch, without submitting to Datang Group for approval and in excess of contract agreements, increased 386 million yuan of investment for the acquisition of 12 small hydropower projects; the actual investment for acquisition of15 hydropower projects exceeded designed budget estimates by 999 million yuan; of the 14 projects placed in operation, only 3 were profitable.

2. As of the end of 2012, three projects, namely: its affiliated Datang International’s Al-Si-Ti Demonstration Project Phase I, Datang Coal Company’s Liuyuanzi Coal Mine and Datang Sichuan Branch’s Ganxipo Hydropower Plant, had completed investments totaling 9 billion yuan in excess of budget estimates, without submitting to the Development and Reform departments for filing or approval in accordance with provisions.

3. As of the end of 2012, actual investment in the Duolun Coal Chemical Project by its affiliated Datang International exceeded budget estimates by 6.179 billion yuan, without filing with the Development and Reform departments and submitting to Datang Group for approval in accordance with provisions; after delayed commissioning, the project failed to achieve expected indicators; due to design flaws the project’s torches failed to meet production requirements and had security risks, re-design and construction increased investment by 18.9986 million yuan; the 3962.7 mu (264.18 hectares) of land occupied by the project failed to obtain construction land use approval, of which 1,736.4 mu (115.76 hectares) were arable land. In 2012, 81 of the project’s contracts failed to conduct open tender, involving contract amounts of 432 million yuan.

4. As of July 2013, 27.3522 million yuan worth of catalyst that its affiliated Datang International procured for the Duolun Coal Chemical Project had never been used, and had exceeded the shelf life by two years; 170 million yuan worth of catalyst that Datang International’s Xilin Gol League Coal Chemical Project Preparatory Office in Inner Mongolia procured for the project remained idle for more than 3 years, increasing capital costs by 29.0303 million yuan.

5. From January 2012 to June 2013, its affiliated Datang International irregularly allowed its ESOP enterprise to acquire equity in high-quality power generation assets within the same trade, enabling it to obtain 160 million yuan in profits.

6. In 2012, 5 official vehicles of its affiliated Datang Group Finance Co., Ltd. and Datang International Fuel Company exceeded Datang Group’s stipulated standards.

7. Datang Group lacked unified planning and control mechanisms in information technology construction and operation, its information systems construction was decentralized, some remained idle right after being built. Of these, 5 information systems of China Water Conservancy and Electric Power Materials Co., Ltd. were shut down with less than 3 years usage, due to ineffectiveness after completion.

8. Datang Group has 641 subsidiaries included in its scope of consolidation, with up to six levels of management; the areal allocation, functional orientation and specialization between affiliated power generation companies, listed companies and specialized companies are not clear and rational, with overlap and duplication of some businesses.

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. Datang Group 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.