Implementing The "Zero Tolerance" Requirement In The Regulation No.68

If we want to rank all kinds of illegal activities in the capital market, "financial fraud" must be the first. From the scallop "escape" of Zhangzi Island, to the "Liangkang" financial fraud being caught, LETV's huge financial fraud and delisting, as well as the false increase of trading volume of overseas China capital stock Ruixing coffee, these bad fraud events have seriously damaged the integrity foundation of the capital market.

In the face of these behaviors that violate the bottom line of the capital market, in recent years, the regulatory authorities have launched a heavy blow to crack down on them, and have issued various relevant policies to prevent financial fraud. According to statistics, since 2018, 61 companies have been punished by the CSRC for financial fraud, and 13 of them have withdrawn from the market.

A close study of these major financial fraud cases shows that their counterfeiting skills are not perfect. There are certain commonalities in the motives, methods and abnormal financial subjects of these major financial fraud cases. By sorting out the clues of these "explosive thunder", we can also rectify the source, curb the "fraud" behavior and strengthen the supervision of financial fraud.

There are different motives for counterfeiting

According to the triangle theory of financial fraud, the main factors of fraud include pressure, opportunity and excuse. The reporter analyzed the fraud behavior of 61 companies and found that although the nature of counterfeiting is for profit, the driving factors for the germination of counterfeiting ideas are different.

37 companies have Refinancing Behavior in the period of fraud or within 2 years before and after fraud. For example, during the financial fraud period, kangdexin and LETV respectively raised 7.8 billion yuan and 9.289 billion yuan by means of directional additional issuance. While making fraud, they raised funds at the same time, constantly "drawing big cakes" and weaving beautiful lies.

15 companies conduct financial fraud to avoid delisting risk warning or delisting. For example, geeya technology made a large loss in 2013. In order to avoid two consecutive years of losses, geeya technology decomposes the target profit of 30 million yuan at the beginning of the year into each quarter, and then determines to disclose the financial data to the public. The authenticity of the financial data is completely lost. In a similar case, Zhangzi Island adjusted the nature of annual profit and loss many times for the purpose of protecting the shell.

The motives of fraud of 16 companies include: the target of restructuring is to achieve performance commitment, improve assessment profit and management compensation, hide large debts and litigation guarantee matters. For example, in order to realize its performance commitment, Champs Elysees, the acquisition target of Guangdong media, falsely increased revenue by 600 million yuan and net profit by 560 million yuan.

The main ways of financial fraud

There are many ways of financial fraud, and the complexity is different. From 61 cases of financial fraud, there are mainly several ways, such as fictitious transaction, accounting treatment and direct destruction of accounting voucher.

As a systematic fraud, fictitious transaction generally has a complete "closed-loop" of fraud, involving many accounting subjects, complicated means of fraud and requiring the joint participation of many parties. The first step is to set up a shell company or use an affiliated company (or an implicit affiliated company), which is the most common method of fictitious transaction. At the same time, in order to meet the cross check relationship, the company will simultaneously increase costs and expenses. The second step is to construct capital circulation by fabricating bank statement, confirmation letter, fund in and out certificate, or using cash transaction to make up capital flow. The third step, through bank deposits, accounts receivable, inventory, fixed assets, construction in progress and other subjects to digest the false income, complete the whole financial fraud closed-loop.

This kind of counterfeiting has strong concealment and is difficult to verify. Kangdexin adopts this method. Its original actual controller and chief financial officer inform all subsidiaries of the planned false income and profit data. After receiving the draft data from each subsidiary, they will match with each false supplier and customer, and then send the fictitious business manuscript and the fabricated false contract to each company for specific implementation, And send false contracts to corresponding suppliers and customers.

At the same time, kangdexin uses the cash management cooperation agreement signed between Kangde group and the bank to carry out cash management, which is used to fabricate false sales return and purchase payment, and to construct a false capital circulation. The relevant funds are transferred out by kangdexin or Kangde group, and transferred to customers cooperating with counterfeiting through multiple bank accounts, and finally transferred back to kangdexin in in the form of sales return, From 2015 to 2018, through fictitious sales business, fictitious procurement, production, research and development, product transportation costs and other means, the total virtual increase in profits was 11.53 billion yuan.

The essence of false accounting treatment is abuse and misuse of accounting treatment. Fraud companies more or less have the behavior of "edge ball" in accounting treatment, including recognizing revenue in advance, changing accounting policies and estimates, net amount method to total amount method, sales return after the period, reversal of bad debt reserves, externalization or capitalization of expenses, less or more provision for asset reduction, and delayed conversion of construction in progress to fixed assets. For example, Steyr recognized the government subsidy (special support fund) as the main business income, and then inflated the net profit accordingly, resulting in the change from loss to profit in 2014; The sales revenue of Qianshan fireworks production line did not meet the revenue recognition conditions, resulting in a virtual increase of 314 million yuan in operating revenue and a total of 195 million yuan in profit; In 2017, Great Wall animation reduced the operating expenses by 10.87 million yuan by accounting the advertising expenses and game business promotion fees as prepayments, long-term equity investment or without accounting confirmation.

"Direct destruction of accounting documents" is more "simple and crude" than the former. According to statistics, more than 90% of the listed companies adopt one or two of the above-mentioned methods, but some companies also adopt simple and crude accounting fraud. For example, Longli biological virtual increases bank deposits by deleting, modifying and forging a large number of accounting documents and related documents; by deleting accounting vouchers related to borrowing in short-term loans, long-term loans, and other accounts payable, the company reduces short-term loans and other liabilities by deleting accounting vouchers related to loans, such as interest expenses and intermediary service fees, As a result, the financial expenses and management expenses are reduced and the total profit is increased.

Dismantle "routine" and lock risk points in advance

Analysis of 61 cases of financial fraud shows that some industries, companies and accounting subjects also provide a specific environment for the breeding of fraud "routines".

From the perspective of industry distribution, there are 7 counterfeiting companies in agriculture, forestry, animal husbandry and fishery, leasing and business services, accounting for more than 11%. Due to the common characteristics of these industries, such as inventory is difficult to verify, overseas income, trade business and factoring business chain is complex, the company is easy to make use of its characteristics to implement fraud, while accountants can only rely more on the internal records and calculation of the company, which provides an opportunity for financial fraud. Typical companies include Zhangzi Island scallop inventory counterfeiting, yabaite fictitious overseas project and trade, Huaxin International fictitious factoring business and crude oil re export trade business.

From the perspective of performance scale, according to the financial statement data of the previous year of the year in which the fraud occurred, 47.54% of the companies had revenue scale of less than 1 billion yuan, and 49.18% had net profit scale of less than 50 million yuan (including loss). Small scale companies are relatively simple in business, relatively weak in internal control, and small in financial data base. Therefore, it is easier to implement fraud and the effect is more significant. From the accounting subjects involved in fraud, the proportion of total profit and income fraud was 83.61% and 55.74% respectively, and the proportion of cost fraud was 16.39%.

What should be paid special attention to is that the monetary capital fraud on the balance sheet has become the fourth major type of financial fraud, accounting for 11.48%. In addition, the accounts receivable, construction in progress and inventory accounts in the balance sheet are also common.

However, there is no perfect fraud in the world, and there will be traces of fraud. The reporter noted that the capital flow and business flow are the core of financial fraud, and the capital flow can reflect the whole process of purchasing, production and sales of a normal enterprise, which is the core of the core. Financial fraud means are complex, but most of them need to use capital flow as the medium to complete the closed-loop fraud. Therefore, in recent years, the regulatory authorities have taken corporate cash flow and business flow as the key content of verification. Even if the fund extracorporeal circulation is set up, the flaws can be found through the cross validation of banks, taxation, customs and other government agencies.

In addition, the power of technology and big data is also a powerful assistant to identify fraud. For example, the China Securities Regulatory Commission (CSRC) used the Beidou navigation system to compare the Beidou navigation positioning information of the bottom sowing shrimp scallop fishing vessel. It was found that the fishing area recorded by Zhangzidao company when carrying forward the cost was obviously different from the actual operation area of the fishing vessel.

In recent years, around the "zero tolerance" working principle and under the unified deployment of the CSRC, a number of vicious fraud cases have been investigated and dealt with, which has released strong signals of resolutely cracking down on counterfeiting in the capital market, serious market order and safeguarding the interests of investors. With the implementation of the "zero tolerance" opinion, financial fraud, which seriously disrupts the market, will continue to be severely attacked.