No. 20 of 2015 (General Serial No. 217)
No. 20 of 2015 (General Serial No. 217):
The Audit Results of the Financial Revenues and Expenditures of Bank of Communications Co. Ltd. for the Year 2013
(June 28, 2015)
In accordance with the stipulations of The Audit Law of the People’s Republic of China, in 2014 the National Audit Office conducted auditing on the situation of financial revenues and expenditures of the year 2013 of Bank of Communications Co., Ltd. (hereinafter referred to as Bank of Communications). The auditing work was focused on the headquarters of Bank of Communications, nine branches in Beijing, Shanghai, Shandong, Jiangsu, Zhejiang, Hubei, Guangzhou, Shenzhen, Hong Kong and six directly affiliated companies such as Bank of communications Financial Leasing Co. Ltd.( hereinafter referred to as Bank of Communications Financial Leasing), Bank of Communications International Trust Co. Ltd., BOCOM International Holdings Co. Ltd., China BOCOM Insurance Co. Ltd., Bank of Communications Schroder Fund Management Co. Ltd., BOCOM CMG Life Insurance Co. Ltd., involving a total assets of RMB411billon, which accounted for 69% of the total amount of assets, and made follow-on and retroactive efforts on relevant items.
I. Overview
Bank of Communications were listed respectively in Shanghai Stock Exchange and Hong Kong Exchange in 2005 and 2007 respectively. As reflected in the consolidated financial statement, the total assets in the end of 2013 amounted to RMB5960.937 billion, the total liabilities reached RMB5539.453 billion, and there was RMB421.484 billion worth of owners’ equity. The realized operating revenue of the same year was RMB164.435 billion and a net profit of RMB62.295 was earned.
The audit results indicated that Bank of Communications has performed overall well in the enforcement of macroeconomic policies of states and the Party, decision and arrangements, continually improved operating results and brought decision-making mechanism and comprehensive risk management to completion. The results also demonstrated that some illegal behavior and weaknesses still existed in the fields such as management performance, risk management and control, and professional ethics of Bank of Communications.
Ⅱ.Major Problems Found in the Audit
(I) On management performance
1. On financial revenue and expenditure
(1) Some profit and loss items were accounted untruthfully. From 2008 to 2013, Pacific Credit Card Centre and Bank of Communications Schroeder Fund Management Co. Ltd. had overstated of RMB 403 million of expenditure. And Shanghai branch had understated RMB99.51 million of revenues from 2011 to 2012.
(2) Some accounting treatments were irregular. The headquarters and four branches in Guangdong, Jiangsu, Shanghai and Zhejiang had illegally listed marketing cost from 2009 to 2013, which involved an amount of RMB174 million. Jiangsu, Hubei branch had such problems as misusing of accounting subjects with a total amount of RMB 1.098 billion. Headquarters and Guangdong, Hubei, Shandong, Shenzhen 4 branches examined billing invoice loosely, involving a total amount of RMB 10.6441million.
In addition, headquarters and branches such as Shanghai, Jiangsu and subsidiaries paid their employees subsidies on traffic and communication and annuity insurance etc. with a total of RMB 1.459 billion.
2. On the enforcement and implementation of macroeconomic policies of states, decisions and arrangements. The headquarter, branches of Beijing, Guangdong, Zhejiang and Bank of Communications Financial Leasing funded the customer through off-balance-sheet financing, forward L/C, financing lease business, etc. which were not included in the credit management.
(Ⅱ) On risk management and control
1. On major economics decision
(1) Some voting patterns of board of directors were irregular. From 2008 to 2013, the fifth to the seventh board of Bank of Communications had convened meetings and voted for important issues by means of tele-voting for thirteen times without specifying reasons for such voting method.
(2) Several major items were unauthorized by the board of directors. Financial review committee overstepped its authority of decision-making granted by the board, examined and approved two financial service centers’ budgets of infrastructure projects in Yangzhou and Hefei.
2. On business operation
(1) On the aspect of corporate loans management, branches in Guangdong, Jiangsu, Shanghai, Hubei, Zhejiang etc. issued loans illegally to some projects and enterprises, with a total amount of RMB 3.757 billion, which did not meet the conditions of making loans from 2008 to 2014. Zhejiang branch and Shandong branch violated the prescribed procedures of issuing loans, amounting to a total loans of RMB 270 million. Beijing branch withdrew and used loans in irregular ways in 2009 and 2012 respectively, with a total amount of RMB 1.286 billion. In addition, some branches implemented loan “three check” system loosely, lacked management system, and loans of steel trade and purchasing forward business also had higher risks.
(2) On the aspect of bills and letters of credit management, four branches in Beijing, Guangdong, Jiangsu, and Hubei had issued the illegal bills of RMB 1.49 billion without real trading background from 2012 to 2013. From 2011 to 2013, branches in Guangdong, Jiangsu and Hubei had issued illegal LC with a total amount of RMB 228 million.
(3) On the aspect of personal loan management, bank of communication had issued 4266 individual home loans of RMB2.4 billion which went against the loan interest rate and down-payment rations in violation of the policy of differentiated credit from 2008 to 2013. Beijing and Zhejiang branch had issued other illegal individual loans from 2010 to 2012 which involved RMB65 million.
(4) On the aspect of business management of taking deposits, branches in Jiangsu, Shandong and Shanghai had issued loans irregularly with a total amount of RMB189 million through soliciting depositors by loaning out from 2012 to 2013.
Besides, some managements and operations in financial Managements, exchange settlements, internet banking, RMB cross-border payments and settlements etc. were irregular.
3. On internal management
(1) Measures of centralized purchasing management formulated by Bank of Communications were not in conformity with provisions of the state and were not submitted for reviewing and authorizing to the Ministry of Finance. The experts who reviewed centralized purchasing were all insiders without having outside experts according to stipulations
(2) Irregular implementations existed in the centralized purchasing bidding at headquarters and the Shenzhen branch.
(3) Bank of Communications had failed to adopt unified procedure or standard for the development of information system outsourcing. Relevant management systems were not completed and parts of its information system had problems with functional design defects in application and inconsistent business data.
(III) On professional ethics
1. Bank of Communications reconstructed and extended the phase three of Zhangjiang Data Processing Center in violation of regulations in 2011, whose budgetary estimate reached RMB93.64 million. The sixteenth floor in Tongtai Tower was decorated and refurbished as hostel of Beijing management department of the Headquarters, involving RMB9.2731 million of investment.
2. From 2013 to 2014, Pacific Credit Card Center of headquarters and Zhejiang branch had listed financial consultant expenses and so on off the books, which amounted to RMB4.9639 million.
Ⅲ. Audit Measures and Rectification
In regard to issues discovered through auditing, the National Audit Office has submitted audit reports and released letters of audit decisions in accordance with laws. Bank of Communications is organizing rectification and forty related rules and regulations have already been formulated and completed. Those responsible also have been penalized and the general public will be notified of the details of straightening and rectification by Bank of Communications.
Clues related to issues in violation of laws and disciplines discovered through the audit this time have been legally transferred to departments concerned to be further investigated and dealt with.