中航油公司案例分析

CAO Singapore Case Study of Internal Contro l

B4 YAN XIAODI

工商4班闫晓迪

China Aviation Oil Co., Ltd. was established in 1993, is a large state-owned enterprises directly under central government of China Aviation Oil Holding Company's overseas subsidiaries in 2001, listed on the Singapore Stock Exchange, becoming China's first self-owned assets abroad by overseas listed Chinese enterprises. Chen Jiulin, under the leadership of the president, CAO Singapore's trade from the brink of bankruptcy enterprises into corporate entities Trade and Industry, the business expanded from a single procurement of imported jet fuel to the international oil trade, the net assets starting from 1997 when the $ 219,000 increase for 2003 of 1 billion U.S. dollars, the total assets of nearly 30 million, has been "bought an oil empire", the incident became the star of the capital market. CAO Singapore, National University of Singapore companies have been selected as the MBA teaching cases, Chen Jiulin was the "World Economic Forum," was named "Asia's economic leader," and appeared in the "Beijing University Distinguished Alumni" list. However, despite drastic changes since 2004, China Aviation Oil Singapore companies in high-risk options trading in oil derivatives suffer huge losses and bankruptcy, becoming the biggest bankruptcy of Barings Bank scandal speculation.

The first quarter of 2004, oil prices, the company hidden losses $ 5,800,000, Chen Jiulin can expect oil prices fell back, decided to defer delivery of the contract, trading volume also increased. In the second quarter as oil prices continue to rise, the company increased the carrying amount of the loss of 3 000 million dollars, after Chen Jiulin kept putting the decision to delivery in 2005 and 2006, trading volume increased again. October oil prices high, and the company has reached 5 200 million barrels of trading bets. Additional dealers for additional margin, the company run out of 2 600 million in working

capital, 1.2 billion of syndicated loans and receivables 6 800 million in funding, book loss of up to 1.8 billion U.S. dollars, the other to pay 8000 million in additional margin, serious cash flow problems. October 10, the group reported deals and book loss for the first time. October 20, get 15% of the company placing the stock ahead of 108 million dollars from loans. October 26 and 28, due to additional contracts can not guarantee who were the Corner, the company suffered actual losses of 132 million. 8 to 25 November, the company's derivatives contracts to continue being the Corner, the actual loss amounted to 381 million. December 1, loss of 5.5 billion U.S. dollars, this company to the Singapore stock exchange for suspension, to the local court for bankruptcy protection.

I. Analysis of Internal Control

March 2005, Singapore PricewaterhouseCoopers submitted a first report that CAO Singapore's huge losses caused by many factors, including: the fourth quarter of 2003, the error on the future oil prices Judgement: The company failed to assess the options based on industry standard portfolio value; lack of basic options to implement risk management measures speculation; of options trading risk management rules and controls, management did not make the implementation of the preparation. But in the final analysis, CAO Singapore root of the problem is its internal control deficiencies.

(A) control environment

China Aviation Oil Singapore, the company hired well-known international accounting firm Ernst & Young prevailing international oil companies to develop a risk management system, establish a meeting of shareholders, board of directors, management, risk management committee, internal audit committees and risk prevention system of checks and balances system, but also Singapore Securities and Futures Commission under the strict supervision. However, "strong governance" culture, the internal control system,

the power gone, the CAO is the root cause of the incident.

1. Internal control. CAO Singapore in the company's equity structure, due to the dominance the company, shareholders will not be binding on the company's largest shareholder decision-making, many scattered small shareholders just to get investment income, little or no word on major decisions right. Composition of the Board, most directors and CAO Singapore company executives and independent directors to be marginalized in decision-making did not constitute a major constraint. In this way, shareholders, board of directors and management and the three combined, decision-making and implementation of one, eventually developed into one by a dictatorship of the operators, the market rules and the internal system failure, the process of decision-making and operation of the mystery, secrecy oriented, autocratic decision-making and daily flow of technology. President Chen Jiulin and Group Vice President, China Aviation Oil Singapore is basically one person's "world." Chen Jiulin hired local people from Singapore as a financial manager, just listen to him, whereas the firm without the company's financial manager sent: the original sent to aspiring financial manager, she was not on the grounds Chen Jiulin in foreign languages, travel manager of the company transferred ; second financial manager assistant to the president for the company were arranged. Party secretary of the company sent more than two years in Singapore, has been engaged in off-Chen Jiulin futures do not know the speculative transactions.

2. The rule of law. 10 October 2004 Japan-China Aviation Oil Singapore Corporation report to the Exchange will have a major loss, China Aviation Oil Singapore, the company failed to independent directors and board of directors, external auditors, the Singapore Stock Exchange and the social sector investment and small shareholders who disclosed this important information, but published in the November 12 financial report third-quarter earnings still

lied. Group in October 20 will hold 75% of CAO Singapore shares 15% of the placement to 50 institutional investors, will receive $ 107,000,000 of the funds to finance the acquisition of the name, misappropriated, as in the Air Singapore oil futures margin. Disclosure to investors false information to conceal the truth, suspected fraud, which constitutes a serious violation of the Singapore Companies Act and the legal provisions of the listed company.

3. Management quality. Quality management means more than just knowledge and skills, including integrity, ethics, values, world views and other aspects, directly affecting the behavior of enterprises, thereby affecting business efficiency and effectiveness of internal controls. Chen Jiulin, there are many weaknesses, the most obvious is the bet of the weight, spent too much time and energy on the game in the speculative trading, the spot trading see Danru water, which is the futures market, the most taboo. Followed by the blindly arrogant, as a net asset to the rapid expansion from $ 219,000 to U.S. businesses billions of dollars President, there are indeed superior to others, but blind arrogance has led to a rash, do not respect the laws of the market, refused to acknowledge and correct the error. Chen Jiulin said: "If you give me $ 500,000,000, I turned out." Words that do not understand themselves and Chen Jiulin, China Aviation Oil Singapore Zaidao roots.

4. Alternative corporate culture. State-owned China Aviation Oil Singapore exposed the external supervision, the internal governance structure is not perfect, especially in the virtual board is set, over-centralized state-owned enterprise managers of state-owned enterprises is characterized by serious problems such as lack of organizational control. This makes the survival of modern enterprises to internationally recognized rules of the game a mere formality with the public, even if the formal establishment of the corporate governance structure, in essence, decisions will still operate unchecked event, the "number one" the final say. CAO Singapore, as the corporate governance

structure for the display of the alternative culture, is trying to improve the state-owned enterprises listed overseas means the improvement of governance structure provides a negative case envisaged.

(B) goal-setting

Managers should be able to properly set goals, make the selection of the target can support, connectivity with the enterprise's mission and consistent with its risk appetite. Since 1997, China Aviation Oil Singapore, the company has conducted two strategic transformation, the final positioning of the oil industry investment, international oil trading and procurement of imported jet fuel for the integration of a combination of industry business entities. Chen Jiulin, under the impetus of the President, CAO Singapore listed company from the beginning of 2001, began to get involved in oil futures. The objective of the establishment of the arbitrariness and the risk of contempt of goals, and ultimately enable enterprises to be overwhelmed by the stormy sea.

(C) identify issues

An organization must identify its objectives of internal and external matters, the distinction between matter and said that the opportunities of risk issues, and guide the management of the strategy or goal has always been not to be deviated from. In the CAO case, if the company's management to promptly recognize the situation, to make huge profits in a sober awareness of possible risks, and perhaps would not have suffered such a painful blow.

CAO Singapore irregularities in three points: First, do the things prohibited by the state to do; the second is over the counter; third more than the spot trading volume. China Aviation Oil Singapore, the oil companies engaged in speculative options is expressly prohibited our government. August 1998 the State Council issued the "State Council on further rectify and regulate the futures market, the notice" clearly states: "to obtain the business licenses of enterprises overseas futures in overseas futures markets to hedge only, not for

speculation." June 1999, the State Council issued the "Provisional Regulations on Futures Trading," Article IV: "Futures Trading Futures Exchange must be within. prohibited by the Futures Exchange Futures off." forty-eighth article: " State-owned enterprises engaged in futures trading, restricted to hedging operations, the total futures trading volume should be the spot with the same period to adapt. "October 2001, the Commission issued the" state-owned enterprise system of Overseas Futures Hedging business management guidance "Article II provides that:" access to overseas futures business licenses of enterprises engaged in the overseas futures market hedging transactions only, not for speculation. "

(D) risk assessment

Risk assessment is to analyze and confirm the implementation process of the internal control objectives "negative uncertainty", to help companies determine where there is a risk, how risk management, and what measures need to be taken. CAO Singapore Petroleum Company is engaged in OTC derivatives trading, high leverage, risk, complexity and other characteristics, but there is no reasonably priced due to internal derivatives, greatly underestimated the risks, coupled with the Air Singapore's choice of oil is a private one-off transaction, the whole process airtight, so the company China Aviation Oil Singapore, the risk is much greater than the trading floor.

(E) risk response

CAO Singapore speculative trading in oil derivatives lead to disaster, the direct cause is not complicated: China Aviation Oil Singapore finds the international price of a barrel of light crude oil was overvalued by about 10 U.S. dollars, held in the oil futures market, a large number of short contract. In the international oil futures prices rose sharply in the circumstances, was forced to continue to margin calls, up to and including the cash flow credit facilities, including a thorough drying up. As international oil futures to a 5% margin contracts held

20 times magnification, CAO Singapore means that the huge loss of $ 550,000,000 "gamble" of about 110 billion U.S. dollars contract, and in the trading process as a "dead short" , there is no "flip over" to "hedge."

Hidden losses in the amount of rising oil prices led to soaring cases, the management of China Aviation Oil Singapore successive delayed delivery contract selection, expected oil prices are down, trading volume also increased. Again and again "move disk" the due date pushed back again and again, this result is that the risks and contradictions snowball double wildly expanding, ultimately can not control the point. Call the seller normally will basically do a reverse transactions to hedge risk, reduce the possibility of loss, although the company China Aviation Oil Singapore has a professional team of risk control, but did not do the reverse hedging.

(F) control activities

CAO Singapore company has hired international "Big Four" accounting firm Ernst & Young, one of its preparation, "Risk Management Manual", a specialized risk management committee of seven people and software monitoring system. Implementation of the traders, risk control committee, audit department, president of the board of directors several levels, cross-control system, requires each trader loss of 20 million dollars to the Risk Control Committee reports and advice; when the loss of 35 million dollars reports and comments to the president, the president of the agreement are to continue trading; any resulting loss of 50 million or more transactions will be automatically closed. CAO A total of 10 traders, if strict accordance with the "Risk Management Manual," the implementation of the maximum limit shall be the loss of 500 million, but China Aviation Oil Singapore companies have been in the derivatives market failure, and ultimately loss of up to 5.5 billion U.S. dollars, and even filed for bankruptcy protection.

In the risk control mechanism, president of China Aviation Oil Singapore, Chen Jiulin, in fact, in central position, risk control and transfer play a decisive role.

Chen Jiulin in the first quarter of 2004 was informed that $ 5,800,000 of the carrying amount of losses, decided not to risk control in accordance with the rules of the internal stop-loss sell at a loss, nor any information on the disclosure of the market, but continue to expand positions, gamble, gambling oil prices down. Until October 2004, losses totaled 18 000 million, current assets depleted, Chen Jiulin, the company reported a loss before and to request assistance. Group actually did not prevent the breach, or the risk assessment, instead choose to sell some shares in private placement to "save" China Aviation Oil Singapore.

Engaging in unauthorized speculative oil derivatives, process, Chen Jiulin as a manager, even also has licensing, enforcement, inspection and supervision functions, did not encounter any obstacles blocking and afterwards can hoodwink the public, concealing true information, which shows the CAO Singapore companies in the division of functions, there are serious problems.