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No. 18 of 2016 (General Serial No. 249): The Audit Results of the Financial Revenues and Expenditures of China Eastern Air Holding Company for the Yea
2017-06-08日   Soure : 【www.9455.com:International Cooperation Department】 :

No. 18 of 2016 (General Serial No. 249):

The Audit Results of the Financial Revenues and Expenditures of China Eastern Air Holding Company 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 China Eastern Air Holding Company (hereinafter referred to as China Eastern Air). The audit focused on the headquarters of China Eastern and six subunits including China Eastern Airlines Co., Ltd., Shanghai Eastern Investment Co., Ltd (hereinafter referred to as Eastern Airlines and Eastern Investment respectively), with the extension and tracing back to relevant items.

I. Overview

China Eastern Air was founded in August 2002. The main business areas it engages in include air transportation, general aviation, flight meal, import and export trade, financial futures, media advertising, travel ticket, and hotel management etc.. As shown in the consolidated financial statements, in the end of 2014, China Eastern possessed 127 wholly-owned or holding subsidiaries and 56 joint stock companies. The registered capital of China Eastern was RMB14.876 billion. China Eastern had total assets of RMB179.19 billion, total liabilities of RMB149.046 billion, total owner’s equity of RMB30.144 billion, asset-liability ratio of 83.18%, current year business operating income of RMB94.745 billion. And, a net profit of RMB2.181 billon was earned, the return on equity was 7.47%, and the rate of the value maintenance and value increase of state-owned capital was 109.7 %.

Entrusted by China Eastern Air, Ruihua Accounting Firm audited the consolidated financial statement of 2014 of the corporation and issued an unqualified audit report.

The audit results conducted by the CNAO indicated that China Eastern has focused on the strategic program of achieving world class quality and constructing a happy China Eastern Air, strengthened the construction of flight hub network, optimized fleet structure, promoted business integration and transformation, improved internal management and enhanced flight safety assurance. 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, professional ethics, and rectification of issues found in audits of previous years etc..

II. Major Problems Found in the Audit

(I) Financial management and accounting

u From 2009 to 2014, headquarters of China Eastern had understated RMB1.424 billion of financial expenses caused by legacy liabilities, among which RMB260 million was understated in 2014.

u From 2010 to 2014, the subunit Shanghai Sales Department had used ticket sales agency fees, which should have been paid, to offset the revenues of air ticket sales, resulting in an understatement of RMB738 million in business incomes and in business costs respectively, among which RMB153 million was understated in incomes and costs respectively in 2014.

u In 2014, internal transaction in the consolidated financial statements of China Eastern Air was not offset fully, resulting in an overstatement of RMB226 million in assets, an overstatement of RMB208 million in liabilities, an overstatement of RMB111 million in revenues and an overstatement of RMB92.9595 million in costs.

u The subunit Eastern Airlines failed to retrieve insurance funds in time in accordance with the regulations. And by the end of June 2015, there had been an understatement of RMB32.0527 million in non-business incomes.

u By the end of June 2015, China Eastern Air had not recognized RMB28 million of capital subsidies it allocated to its subunits in 2009 as long-term equity investments. And the capital subsidies were accounted as a current account instead, resulting in an understatement of equity investments.

u In the end of 2014, the subunit Shanghai Sales Department overdrew air ticket sales agency fees in advance, resulting in an overstatement of RMB14.9528 million in costs.

u From 2010 to 2014, four enterprises including the subunit Eastern Investment had not included RMB10.7532 million of traffic subsidies which should have been distributed to the staff in the management of total wage, among which the amount in 2014 was RMB3.5617 million.

u From 2005 to 2013, the subunit Eastern Airlines Import and Export Co., Ltd had irregularly purchased RMB8.1555 million of commercial insurance for its employees.

u In 2014, four enterprises including the subunit Beijing Branch bore personal income taxes for their staffs, resulting in an overstatement of RMB6.2869 million in costs.

u From 2013 to 2014, the subunit Shanghai Eastern Aviation Industry Co., Ltd. had transferred RMB1.8902 million of business entertainment expenses to its subunits, among which the amount in 2014 was RMB1.0691million.

(II) Decision-making and enterprise management

u In 2010, the subunit Yunnan Aviation Real Estate Development and Management Co., Ltd. did not withdraw from the real estate business in accordance with the regulations, invested RMB609 million on development of real estate projects and irregularly determined bid-winning units of three sections (the contract amount was RMB599 million). The project was halted later due to the lack of funds. By the end of 2014, accrued asset impairment had reached RMB121 million.

u From 2011 to 2012, the subunit China Eastern Investment Company and Eastern Airlines Media Co., Ltd. had irregularly used RMB191 million funds high risk investment such as stock index futures etc. without collective approval.

u From 2009 to 2011, the former head of the subunit South Korean Business Department had illegally embezzled the company’s funds of RMB141 million by fabricating false expenditure contracts. In July 2013, South Korean court sentenced him to 6 years in prison for his crime of taking bribes. By the end of June 2015, the funds mentioned above had not yet been recovered.

u From 2011 to 2014, the subunit China Eastern Airlines Jiangsu Ltd. had foreign contracted air routes which did not meet the regulations of the company for business after internal approval, resulting in a loss of RMB43.1106 million.

u From 2012 to 2014, the subunit Shanghai Sales Department had irregularly offered RMB10.3757 million rewards to four air ticket agencies through overpayment of reward funds or ticket sales deduction, among which the amount in 2014 was RMB255,400.

u From January 2008 to April 2015, three enterprises including the subunit Hebei Branch of China United Airlines Co., Ltd. had dispatched staffs to the “third industry” enterprises and undertaken their salaries of RMB79.9759 million, and provided the “third industry” enterprises with part of housing estates and vehicles free of charge, among which RMB9.7218 million in salary was undertaken in 2014.

u From 2009 to 2014, three enterprises including Eastern Investment had failed to call for bids in accordance with the regulations, involving 63 contracts amounting to RMB305 million in total, among which the amount in 2014 was RMB29 million.

u From 2011 to August 2014, the subunit Shanghai Eastern Real Estate Co., Ltd. had had a poor supervision on an engineering project and the unit in charge of the construction had irregularly subcontracted the engineering project to individuals to undertake, involving RMB50.2191 million and an overpayment of RMB16.719 million in project funds.

u In 2013, the project of West Hongqiao catering building of the subunit Eastern Airlines was changed its original purpose because of its irrational design, resulting in a loss of RMB1.6849 million. And the equipment worth of RMB9.7287 million was idled due to the same reason.

u In 2007, the subunit Shanghai Eastern Airlines Food Co., Ltd irregularly determined the enterprises which could not meet the requirements of the bidding document as general contractors of its construction project and overpaid RMB85.66 million in engineering project.

u The subunit Shanghai Eastern Airlines Food Co., Ltd failed to call for bids in accordance with the regulations and directly signed aviation food purchase contracts with Shanghai Eastern Food Sales Co., Ltd.. From 2006 to 2010 the accumulated purchase had amounted to RMB597million.

u 12. From 2011 to 2014, the subunit Eastern Airlines Technology Co., Ltd. had continuously purchased 572 kinds of similar aviation materials from 29 providers despite there were stock aviation materials having not been used, involving RMB23.8531 million, among which the amount in 2014 was RMB1.139 million.

u The subunit China Cargo Airlines Co., Ltd. failed to process idle aviation materials in time. Depreciation of aviation materials was serious. By the end of June 2015, except for the RMB170 million in accrued inventory falling price reserves and the RMB37.9545 million in accrued fixed assets depreciation reserves, the remaining aviation materials whose net worth of book value was RMB42.3716 million had been faced with the risk of losses.

u In 2013, the subunit China Tourism Investment (Group) Co. Ltd. failed to do reevaluation in accordance with the regulations despite the fact that the original assets assessment results had lost validity and directly transferred the possession of 10 sets of houses estimated RMB25.3198 million to external bodies.

u By the end of June 2015, China Eastern Air and its subunits had not gone through the property right registration and procedures of changes for 209,100 of land and housing properties.

u China Eastern Air had started the liquidation of its subordinate North West Company and Yunnan Company in 2008 and 2010 respectively, which had not been finished yet by the end of June 2015. Ledger assets of the companies mentioned above amounted to RMB1.881 billion in the end of 2014.

u In the information construction of China Eastern Air, there existed some problems such as the construction of information system of the remote disaster handling center fell behind, overall localization rate of information products was low and part of the information system design was not reasonable etc..

(III) Development potential

u From 2012 to 2014, Investment in science and technology of China Eastern had been RMB2.72 millionRMB1.17 million and RMB19.25 million respectively, accounting for 0.003%, 0.001% and 0.023% respectively of the main business income of the same period, which saw a rather large gap from the required 2.5% of supervisory departments.

u The main business of air transport of China Eastern Air was deeply influenced by market factors such as oil price and currency exchange rate etc. The scale of supporting industry was still small and the ability in coping with market volatility risks was relatively weak.

u Ticket sales of Eastern Airlines depended mainly on agents. In 2014, ticket direct selling ratio was only 23.3%. And, the service fees paid to the agents were RMB2.52 billion.

(IV) Professional ethics

u In 2012, the logistic support department affiliated to the subunit Ground Service Department gave special favor to an enterprise which had participated in the cleaning project bidding. By June 2015, accumulated service fees paid by the Ground Service Department had been RMB8.5026 million, among which the amount in 2014 was RMB2.8396 million.

u Since 2011, the subunit Shanghai Eastern Fuda Transportation Service Co. Ltd. has developed business with enterprises of specific relationship. By the end of June 2015, RMB1.6096 million of freight revenues had not been recovered.

u From 2009 to the end of June 2015, 148 administrative staff from three units including the subunit Eastern Airlines Yunnan Co., Ltd. had irregularly held shares of associated enterprise and received RMB355, 600 in bonus.

u From 2012 to the beginning of 2015, the deputy general manager of the subunit Eastern Airlines Import & Export Co., Ltd. had reimbursed RMB111,700 cost of playing golf with public funds, among which the amount in 2014 was RMB45, 000.

(V) Rectification of issues found in audits of previous years

The CNAO pointed out in the audit report of China Eastern Air conducted in 2009 that two enterprises including the subunit China Eastern Airlines North West Company had kept RMB14.2327 million in current cash on account for a long time and did not sort out the matter. This issue has not been rectified completely till the audit for this time.

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 China Eastern Air 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.

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