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No. 21 of 2016 (General Serial No. 252): The Audit Results of the Financial Revenues and Expenditures of China National Travel Service (HK) Group Co.,
2017-06-08日   Soure : 【www.9455.com:International Cooperation Department】 :

No. 21 of 2016 (General Serial No. 252):

The Audit Results of the Financial Revenues and Expenditures of China National Travel Service (HK) Group Co., Ltd. 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 audit on the financial revenues and expenditures for the year 2014 of China National Travel Service (HK) Group Co., Ltd. (hereinafter referred to as CTS (HK) Group). The audit focused on the headquarters of CTS (HK) Group and 5 secondary units including China Travel Service (HK) Huamao International Logistics Co., Ltd. (hereinafter referred to as Huamao Corporation), with the extension and tracing back to relevant items.

I. Overview

CTS (HK) Group was founded in October 1985. The main business areas it engages in include tourism and relevant cultural business, entity investment (iron), real estate development and operation and logistics trades etc.. As reflected in the consolidated financial statement, by the end of 2014, CTS (HK) Group possesses 361 wholly-owned or holding subsidiaries and 23 joint stock companies, has RMB7.053 billion of registered capital. The total assets amounted to RMB98.102 billion, the total liabilities reached RMB68.465 billion, and there was RMB29.637 billion worth of owners’ equity. The asset-liability ratio was 69.79%. The realized operating revenue of the same year was RMB50.314 billion and a net profit of RMB1.477 billion was earned. The return on equity was 5.14%, and the rate of the value maintenance and value increase of state-owned capital was 102.5%.

Dahua Accounting Firm, entrusted by CTS (HK) Group, audited the consolidated financial statement of 2014 of the corporation and issued an audit report with unqualified opinions.

The audit results conducted by the CNAO indicated that CTS (HK) Group planned the overall development, refined business plans, improved the industrial distribution, strengthened the key position of its major industry and optimized the corporation’s governance structure. The system of decision-making of board of directors on significant matters was tentatively formed. The results also demonstrated that some problems still existed in fields such as financial management, accounting, important corporation decisions and management, development potential, and professional ethics.

II. Major Problems Found in the Audit

(I) Financial management and accounting

uFrom 2009 to July 2015, the headquarters of CTS (HK) Group and its 3 subunits had irregularly claimed or used RMB2.084 billion of special funds, among which RMB300 million of industry upgrading funds were mainly used to buy financial products in 2014.

u From 2006 to June 2015, four units including the sub-unit Shaanxi Weihe Power Co., Ltd. had understated RMB83 million of income including electricity selling income, understated RMB91 million of costs including advertising expenses, and overstated RMB166 million of costs including housing fund, among which the understated income and understated costs of 2014 were RMB79 million and RMB29 million respectively.

uFrom 2013 to July 2015, the sub-unit CTS International Conference Exhibition Service Co., Ltd. had illegally used annulled and invalid invoices to reimburse RMB66.9319 million of air ticket expenses, among which the amount of 2014 was RMB29.3297 million. From 2012 to 2014, 47 organized touring groups had had RMB7.5311 million income and RMB4.8543 million expenses on the credit of intercourse funds for a long time, which failed to be cleared in time or added into income and expenditures.

(II) Decision-making and management

u In 2007, CTS (HK) Group, without the approval of the board of directors and NDRC, irregularly built the project of CTS HK (Qingdao) Ocean Spring Resort with a planning investment of RMB4.136 billion. Besides, the Group paid RMB20 million to the competitors to have them quit the land biding. By the end of 2014, an accumulated investment of RMB2.787 billion had been made on the project, resulting in a loss of RMB200 million due to inadequate feasibility study.

u In 2014, the subunit CTS International Logistics Co., Ltd., without going through procedures of obtaining planning permit, land use permit and construction permit, irregularly lent 82.44 mu of agricultural land to build storing facilities , involving RMB35.7551 million of investment.

uFrom 2911 to 2014, CTS (HK) Group had released 26.4 billion of entrusted loans without the approval of the board of directors, among which the amount of 2014 was RMB7 billion.

uIn 2010, CTS (HK) Group, without being approved by the board of directors, in order to solve the long-term loss and operational difficulties of the first-stage project of CTS HK (Zhuhai) Ocean Spring Resort, deployed and promoted the second-stage project construction. By the end of 2014, the accumulated investment of the first and second stage project had reached RMB4.23 billion and the loss reached RMB745 million.

u In 2011, the subunit CTS (HK) (Shenyang) Properties Co., Ltd., without taking assets appraisal, transferred 96.32 mu land to the government, which was bought with RMB33.6122 million in 2005.

u From 2006 to 2014, 216 projects of 5 units including the subunit CTS HK (Qingdao) Ocean Spring Resort Co., Ltd. had failed to bid openly in accordance with the regulations, involving RMB3.587 billion, among which the amount of 2014 was RMB124 million.

uBy the end of 2014, the project of CTS HK (Xianyang) Ocean Spring Resort, in which the subunit CTS (HK) Group invested RMB865 million, had generated an accumulated loss of RMB264 million due to inadequate feasibility study.

u From 2007 to 2008, the subunit CTS (HK) (Shenyang) Properties Co., Ltd. had irregularly subcontracted a project worth RMB43.8972 million within its CTS International Town project. By the end of 2014, the project had generated an accumulated loss of RMB130 million due to poor management.

u In 2014, the Group Project Biding Management Approach formulated by CTS (HK) Group was not in keeping with the state rules in that it increased the initial constructing bidding price from RMB2 million to RMB3 million.

uIn regard to information construction, by June 2015, the headquarters of CTS (HK) Group and three subunits had failed to set up the national standard data interface for its financial software, and failed to set up remote data backup for its information system.

(III) Developing potential

u From 2006 to 2014, CTS (HK) Group had leaned on iron business more, while its major touring business lacked in innovation. The main touring business profits were mainly made from the old scenic spots and old brand hotels.

u From 2011 to 2014, the science and technology investment of CTS (HK) Group were  0.0038%, 0.08%, 0%, 0.05% respectively, and the research & development investment were 0.0038%, 0.08%, 0%, 0.04% respectively, which were seriously lower than 2.5% and 1.8% required by supervision department.

(IV) Professional Ethics

u From 2013 to May 2015, some of the senior executives of CTS (HK) Group had irregularly consumed RMB753,500 in affiliated golf clubs.

u From 2006 to 2014, CTS (HK) Group had irregularly released RMB19.2389 million of clothing allowance to the senior executives, among which the amount of 2014 was RMB4.1886 million. After the central Eight Rules were publicized, the involved money of those leading group members was RMB1.4285 million.

uFrom 2002 to 2014, two units including the subunit CTS International Logistics Co., Ltd. had irregularly purchased golf cards and shopping cards with RMB7.931 million, among which the amount of 2014 was RMB295,500. After the central Eight Rules were publicized, the involved money was RMB596,200.

u From 2013 to 2014, the subunit CTS International Logistics Co., Ltd. had purchased three cars in excess of the standard, involving RMB1.8146 million, among which one car was purchased in 2014, involving RMB4456,700.

III. Audit Disposal and Rectification

Regarding to issues discovered through auditing, the CNAO has issued audit report and released letters of audit decisions in accordance with laws. CTS (HK) Group will notify the general public of the details of the 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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