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No. 19 of 2016 (General Serial No. 250):The Audit Results of the Financial Revenues and Expenditures of China Southern Air Holding Company for the Yea
2017-06-08日   Soure : 【来源:International Cooperation Department】 :

No. 19 of 2016 (General Serial No. 250):

The Audit Results of the Financial Revenues and Expenditures of China Southern 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 Southern Air Holding Company (hereinafter referred to as CSAH). The audit focused on two secondary units: CSAH’s headquarter and China Southern Airlines Co., Ltd. (hereinafter referred to as CSA), with the extension and tracing back to relevant items.

I. Overview

CSAH was established in October, 2002. The main business areas it engages in include the transportation of public air passengers, cargoes, and mails, the maintenance and import & export of aviation equipment and facilities, air passenger, cargo, and ground handling, aircraft leasing, aviation training and consultation, etc. As reflected in the consolidated financial statements of CSAH, as of the end of 2014, it possessed 8 wholly-owned or controlling subsidiaries and 33 shareholding companies; it had RMB11.196 billion registered capital, RMB196.752 billion total assets, RMB151.566 billion total liabilities, RMB45.186 billion shareholders’ equity, and 77.03% asset-liability ratio; the realized operating revenue of the same year was RMB109.18 billion, had RMB3.083 billion net profit, 7.04% return on equity, and 108.96% rate of the value maintenance and value increase of state-owned capital.

Zhitong Accounting Firm, entrusted by CSAH, audited the consolidated financial statement of 2014 of the company and issued an unqualified auditing report.

Results of the audit conducted by the CNAO indicated that CSAH has made stable growth in production scale, increased passenger traffic, cargo and mail traffic, and flight hours, continued to improve internal management, and made certain achievements in ensuring flight safety etc. The results also demonstrated that some problems still existed in fields such as financial management and accounting, corporate major decision-making and management, developing potential, professional ethics etc. of CSAH.

II. Major Problems Found in the Audit

(I) Financial management and accounting

u In 2014, four subunit enterprises including Guangzhou Baiyun International Logistics Ltd. made inaccurate disclosure of related party transactions, involving RMB303 million.

u From 2010 to 2012, the subunit CSA had issued safety management bonus to staff in excess of total wages, resulting in an overstatement of RMB117 million expenses.

u In 2013, the subunit CSA delayed revenue of extended cargo transportation service from previous years and recognized it as other operating income of the year, resulting in an overstatement of RMB77.4682 million income of 2013.

u From November 2009 to June 2014, the aircrew canteen of flight department of the subunit Henan Airlines of CSA (hereinafter referred to as Henan Company) had irregularly transferred RMB19.0572 million funds allocated by finance department of the company to accounts opened in the name of individuals of staff and spent them, among which RMB10.76 million of various types of subsidies was allocated to aircrew and other staff in cash, gift cards, etc., and RMB664.3 thousand was spent on business entertainment and gifts.

u From 2009 to 2013, the subunit Henan Company had spent RMB4.0417 million on clothing for staff without including it in total wages management.

(II) Corporate decision-making and management

u In January 2013, CSA changed the payment method in purchasing an A321 airplane from financial leasing to its own fund without going through collective decision-making via general manager’s office meeting, involving RMB270 million.

u From 2011 to 2012, the subunit Guangzhou Southern Airlines Construction Ltd. had failed to strictly supervise the bid winner of the China Southern Airlines building project, and the project was irregularly subcontracted repeatedly to unqualified construction teams, involving RMB577 million.

u From 1998 to 2014, the subunit Shenyang Maintenance Base had undercharged RMB123 million labor costs etc. while undertaking maintenance service for Shenyang Beifang Aircraft Maintenance Co., Ltd., a related enterprise.

u From 2010 to 2015, two real estate development projects of the subunit Construction and Development Ltd. had made an actual net profit of 110 million, failing to achieve the expected goal of profit.

u From 2009 to 2014, the subunit Henan Company had failed to invite bidders as stipulated before signing 33 contacts of material and service purchase, involving RMB81.2288 million, among which the amount in 2014 was RMB9 million.

u In April 2013, the maintenance engineering department of the subunit CSA irregularly conducted substantive negotiations with a supplier in advance when purchasing flight seats, then recognized it as a supplier through bidding invitation. The contract value was RMB32.78 million.

u In April 2010, the cabin department of the subunit CSA signed supply contracts with a supplier before going through bidding process, in which the supplier was selected. In 2012 the supplier was recognized again without public bidding. By the end of 2014, RMB28.1542 million worth of goods had been supplied.

u In July 2011 when the open bidding for foreign wine purchase for cabin was in process, the cabin department of the subunit CSA allowed an unqualified supplier to pass the review and win the bid. By October 2014, RMB18.9367 million worth of goods had been supplied.

u From 2006 to 2014, the subunit Construction Headquarter of Nanyang Jiangying Airport expansion project, without going through bidding process as stipulated, had signed 7 contracts of various types including projects construction, and procurement of equipment and service, involving RMB8.27 million.

u In February 2014, the subunit Construction Headquarter of Shenyang Maintenance Base and Hangar signed one construction agreement without going through bidding process as stipulated, involving RMB4.4471 million.

u From 2009 to 2014, 11 departments of the subunit Henan Company had irregularly signed 178 contracts with external parties in the name of departments, involving RMB34.1365 million, among which the amount in 2014 was RMB2.8723 million.

u From 2009 to 2014, while no relevant service contract had been signed, the subunit Henan Company had paid RMB270.7 thousand service fees for flight delay etc. to 7 hotels, among which the amount in 2014 was RMB129.5 thousand.

u From 2009 to 2014, the subunit Henan Company had failed to strictly implement stipulations of contracts and overpaid RMB188.2 thousand baggage delivery fees to external parties, among which the amount in 2014 was RMB47.7 thousand.

u From 2009 to 2013, the cabin department of the subunit CSA had signed contracts with suppliers, which turned RMB10.4743 million product sales discount into cooperation funds held in trust by the latter, and then spent RMB3.9094 million of it on overseas training fees and other expenses for staff of the department in the name of reimbursement etc.. As of June 2015, RMB6.5649 million was in balance.

u In January 2009, the subunit Hunan subsidiary left the airport attendance building to Nantian Industrial Company, a related but unqualified company, to run accommodation business. By the end of 2014, the latter had earned RMB5.5842 million income from operating accommodation.

u In 2011, the subunit CSA Sanya Real Estate Development Co., Ltd. did not quit real estate business as required by rules, and commenced “CSA Sanya regional headquarter complex project”. Construction of the project was halted due to shortage of funds etc., and the RMB2.9796 million initial investment ended up in loss.

u In August 2012, CSAH authorized 32,900 square meters of land free of charge to Henan Aviation Industrial Development Co., Ltd., a related enterprise, for business and management. The latter made RMB401.4 thousand income in 2013 and 2014.

u In January 2013, the subunit CSA Sanya Real Estate Development Co., Ltd. paid RMB115.9 thousand fees for the event called new year tea party & thanking party to travel agency in the name of conference fees.

u From 2009 to 2012, annual procurement plans made by the subunit CSA had been weak in terms of guidance due to late formulation and significant changes in the technical renovation investment plan during the course of implementation.

u During informationalization construction, the subunit CSA had had problems including part of system development failing to meet expectation and low domestication rates in some parts of information system.

(III) Developing potential

u From 2012 to 2014, investment in science and technology by CSAH had been RMB102 million, RMB123 million, and RMB133 million respectively, accounting for 0.10%, 0.13%, and 0.12% of revenue of the corresponding period, significantly less than the 2.5% required by regulatory authorities.

u CSAH’s main business, air transportation, is very sensitive to market factors such as oil price and exchange rate, and supporting business is small in scale. Therefore, CSAH is weak at coping with market volatility risks.

u The subunit CSA depends on agents for sales of passenger tickets. In 2014, direct sales rate of passenger tickets was only 18.88%, and commissions totaling RMB3.252 billion were paid to agents.

u Five Airbus A380 aircrafts imported by the subunit CSA in 2011 had low utilization rates, and the operation continued to be in loss, increasing the business pressure on the company.

(IV) Professional ethics

u From 2010 to 2013, the subunit CSA Sanya Real Estate Development Co., Ltd. had paid RMB945 thousand for golf with public funds. Among which 48 times occurred after the introduction of the “Eight Rules by the central government, and RMB193.7 thousand was spent.

u From 2012 to 2013, the subunit Hunan branch company had reimbursed RMB245.8 thousand fees for meals and conferences etc. at affiliated units, while they should have been born by individuals. Among which RMB176.8 thousand was reimbursed after the introduction of the “Eight Rules”.

III. Audit Disposal and Rectification

In regard to problems found in the audit, the CNAO has issued audit report and has released letters of audit decision in accordance with laws, and CSAH 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.