(A) control environment failure
Enterprise internal control environment determines whether other control elements can play a role, is the basis for other elements of internal control to play a role, directly affects the implementation of enterprise internal control and is the core of enterprise internal control. The Cao incident was caused by serious defects in internal governance structure and ineffective external governance intervention. "Facts precede rules" has become an objective portrayal of CAO (Singapore) in futures trading. Supervisors of the CSRC revealed to the media that after the listing of CAO (Singapore) 200 1, they did not apply to the CSRC for an overseas futures trading license. Later, the CSRC saw that there were futures transactions in its prospectus and took the initiative to supplement the materials. Under the cover of listed companies in Singapore, Cao started a game with domestic regulatory authorities, relying on rising market performance in exchange for the silence of the controlling party, Aviation Oil Group, thus entering the futures and options business; However, the regulator not only failed to investigate this, but also let it "act first" until speculation and losses really occurred. Cao's board of directors is even more ineffective. PricewaterhouseCoopers made detailed inquiries to board members, management and traders, and issued a detailed investigation report. Customers reported that the internal control of the overseas state-owned enterprise CAO (Singapore), which was once regarded as a "model", was chaotic, the person in charge was overwhelmed, and the governance structure was ineffective.
(B) a weak sense of risk
Cao's internal risk management manual is well designed, which stipulates the corresponding approval procedures and the authority of managers at all levels, and reduces the risk of fund use through joint signing; Adopt the most advanced risk management software system in the world to integrate spot, paper goods and futures and comprehensively monitor them. However, since 2003, Gerard rigby, an Australian trader of CAO, began to trade speculative options. Chen Jiulin claimed not to know. After learning of the loss of $5.8 million on March 28th, Chen Jiulin himself agreed to the extension plan proposed by Cindy Chong, director of the Risk Management Committee, and Gerard rigby, a trader. In this way, Chen Jiulin personally denied his own risk management regulation that "when the loss of any transaction reaches $500,000, he will immediately close the position and stop the loss", which is tantamount to giving a de facto recognition to his opponent's "preemptive strike".
(C) information system distortion
Cao (Singapore) cheated his superiors by making false accounts. According to the financial statistics reported by Singapore companies in June 2004, the total assets of Singapore companies in that month were 4.26 billion yuan, the net assets were 1, 65.438+0 billion yuan, and the asset-liability ratio was 73%. Long-term accounts receivable165438+700 million yuan, as well as accounts payable. From the book, not only is there no problem, but the business situation is very good. But in fact, in June 2004, Cao had already faced a potential loss of $35.8 million in oil futures trading, and he still added "short" funds in the wrong direction, but it didn't show anything in the financial accounts. Due to the over-the-counter transactions in Chen Jiulin, the Group did not discover Chen Jiulin's secret through normal financial statements. The local regulatory authorities in Singapore have not found that Cao Singapore Company was also rated as the most transparent listed company in Singapore in 2004. Such a big loophole was covered up by Chen Jiulin's false accounting for so long that it happened without warning.
(D) Management out of control, supervision in name only.
Director of CAO (Singapore) and head of the asset and financial management department of CAO Group have never reviewed the company's annual report. Secondly, even if Li Yongji wanted to review the annual report, it would be difficult. As a director of an overseas listed company, my English is not good, and I can't find out from the financial statements that the company has started to engage in option trading. Jiao Changbin is also the chairman of CAO (Singapore) and the president of CAO Group. He stressed that since Cao has no other subsidiaries listed overseas, he is not familiar with the duties of directors. He pointed out that until June 30, 2004, the board of directors had no "real" jurisdiction over Chen Jiulin. As usual, Jiao Changbin said that the language barrier made him lack understanding and supervision of CAO (Singapore). Although he is the chairman of CAO (Singapore), his financial information comes from the finance department of CAO Group in Beijing. At the same time, because most members of the board of supervisors lack knowledge and literacy in law, finance and technology, the supervisory function of the board of supervisors can only be empty talk. However, internal audit usually exists in name only, and this kind of supervision is equal to nothing. In the course of operation, the internal control failed, the supervisory functions of the board of directors and the board of supervisors were vague, and the necessary internal audit was lacking, thus forming Cao's tragedy.
Third, think.
The Cao incident sounded the alarm for large state-owned enterprises. At present, although there are some problems in the internal control of state-owned enterprises in China, the importance of internal control has attracted the attention of enterprises. The failure of Cao's internal control has triggered new thinking on the internal control of state-owned enterprises;
(A) must improve the management mechanism, clear management responsibilities.
In the modern enterprise system, the separation of ownership and management right leads managers to have the control right of the enterprise, from which managers manage themselves, supervise and evaluate themselves, which will inevitably lead to the consequences of abusing power for personal gain and acting arbitrarily. A proactive board of directors is very important for internal control. How to realize the supervision of the board of directors over the managers is the most important link in the daily supervision of enterprises. Only by exerting the role and potential of the board of directors can the interests of shareholders and other interest groups be truly protected.
(b) We should shift from detail control to risk management.
The internal control system of an enterprise can not be separated from the environment on which it depends and various risk factors inside and outside the enterprise. Establishing risk management objectives is an important link in the control process. Therefore, enterprises should set coordinated goals throughout the organization, find out the key risk factors of enterprises, conduct risk assessment and set up key control points. Due to limited management resources and considerable control costs, enterprises cannot focus on all the details. Therefore, the board of directors and management are required to pay special attention to the links where major risks may occur, and take risk management as the most important content of internal control, so as to improve the ability of decision makers to judge, control and manage risks.
(C) attention should be paid to the establishment, operation and evaluation of internal control.
China Aviation Oil (Singapore) Co., Ltd. has also spent considerable energy in designing internal control, but it lacks appropriate measures to ensure the implementation of the system. Therefore, internal control must have a supervision mechanism to promote its implementation. Internal audit is an activity of self-independent evaluation of enterprises, which has unique advantages. In the enterprise, it is not directly involved in relevant economic activities, and it is in a relatively independent position, but at the same time it is in various management activities, and it is familiar with various businesses within the enterprise and has a better understanding of what has happened. The internal audit of the company is directly responsible to the board of directors, and any important audit decision is approved by the board of directors. This not only ensures the relative independence of the company's internal audit, but also ensures its authority. On this premise, the internal audit department can find out the weaknesses, imperfections and ineffective implementation of internal control through the review and evaluation of internal control, and then put forward improvement opinions and measures to supervise the effective implementation of other control policies and procedures.
(D) The object of internal control should be transferred from the grassroots to the senior management.
Fundamentally speaking, the fatal cause of the Cao incident is that the personal power is too large and there is no effective restriction and supervision on the personal power, which makes the individual above the system and the system cannot be implemented. Whether an internal control or risk management system with clear rules and regulations, sound organization, complete personnel and advanced technology can effectively manage risks and prevent heavy losses in actual operation depends on the role played by senior leaders in this system. This is not only because they are the primary responsible subject and the most basic driving force of internal control, but more importantly, they have absolute power. Therefore, senior leaders must be included in the whole internal control system based on mutual inspection and power checks and balances, and become an important object of control and restraint. Otherwise, senior leaders will have special power beyond internal control constraints, which will lead to the failure of the whole internal control or risk management mechanism.