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China Auditor Finds Irregularities in China Resources; Audit Reveals Misused Funds, Improper Bidding Procedure and Failing to Seek Approvals

China Auditor Finds Irregularities in China Resources

Audit Reveals Misused Funds, Improper Bidding Procedure and Failing to Seek Approvals

June 20, 2014 6:08 a.m. ET

BEIJING—China’s state auditor said Friday that it has found irregularities in the operations of the state-owned conglomerate China Resources, including misused funds, improper bidding procedure and failure to seek approvals. The audit also found evidence that some executives were involved in “serious violations of law and discipline.”

The audit results came after the government started investigating the activities of several former executives of the group. The auditor didn’t name or blame any officials.

Earlier, the Communist Party announced a probe into China Resources’ ex-chairman Song Lin, who was stripped of his party and government positions in April. Wang Shuaiting, vice chairman of China Travel Service (Holding) Hong Kong, is also under investigation for activities during his tenure at the company, the Communist Party’s antigraft arm said in May. Neither former official has commented on the probes.

An audit of China Resources’ 2012 financial statements shows that a listed unit,China Resources Power Holdings Co. 0836.HK +1.94% Ltd, didn’t conduct public bidding for 586 projects it awarded valued at 11.7 billion yuan ($1.9 billion). Instead, it invited specific bidders to decide on contractors and service providers, the National Audit Office said on its website.

Moreover, five power-generating facilities under the power company were constructed or put into operation in 2012 without government approval, the auditor said. These facilities had power sales of 283 million yuan in 2012.

Similarly, a merger involving China Resources Cement Holdings Limited, valued at 175 million yuan, was made in 2012 without government assessment or approval, the state auditor said.

The audit also found that 1.3 billion yuan raised by two trust products, intended to boost liquidity at the trust company, instead was invested in property development by the borrowers, the auditor said.

Meanwhile, in 2012, the group company and some affiliated units spent 2.11 million yuan on playing golf, the audit revealed.

China Resources said on the group’s website Friday that most of the irregularities found by the auditor had been rectified by the end of May and it vowed to improve internal control.

China Resources has 1,522 subsidiaries in a wide range of sectors, including retail, power, real estate, cement, pharmaceutical, gas and financial, the auditor said.

 

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About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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