Big deal at Deloitte!
“Deloitte” has suddenly become a hot search term on social media platforms, which is behind the scandal of Deloitte PPT.
Image source: Weibo screenshot
Interface news reporter learned that, on February 3rd night, net transmission deloitte HuaYong certified public accountants audit (special ordinary partnership) Beijing branch office of a group of an employee to a 55 pages of PPT file for group company email, report the various irregularities during the period of 4 years working people and things.
Source: Screenshot of Deloitte’s report PPT
The reporter of Jiemian News then consulted the relevant staff of Deloitte on this matter. But the Deloitte Shanghai employee said he was “not aware of this” and would ask Deloitte in Beijing about the matter. But as of press release, the reporter still did not get reply.
However, ifeng.com reported that it received a “letter of apology” signed “YW” (editor’s note: YW is the code name for the employee who blew the whistle). “The actions of Deloitte management and RRG [Deloitte’s Reputation and Integrated Risk Management Division] crossed the line of audit ethics,” YW said in its apology letter.
According to the PPT, the whistleblower reported Deloitte’s violations of the audit process, such as “letting off a plane” and failing to implement the withdrawal procedure, respectively through his own reporting and by relayed the reports of others. Among them, the three listed companies involved are Sinotrans (601598.SH, 00598.HK), Boqi Environmental Protection (023777.HK) and Red Yellow Blue (RYB.N), which is known to the public for its child abuse incidents.
The informant emphatically denounced the illegal audit behavior of “flying a plane”. The so-called “airplane”, in the audit work, is mainly “audit procedures have not been implemented”, in the draft to write their own audit procedures have not done.
JiemianNews has learned that Sinotrans is the unified operation platform and brand of China Merchants Group’s logistics business. The company was listed on the Hong Kong Stock Exchange on February 13, 2003 and on the Shanghai Stock Exchange on January 18, 2019. It is an “A+H” dual-listed company. According to Armstrong & Associates, Inc. In 2020, Sinotrans ranked the world’s TOP25 freight forwarders and the world’s Top50 third party logistics (TPL). Sinotrans ranked the eighth and fourth place in the world in TPL and freight forwarder services respectively.
According to Sinotrans’s 2016 annual report, Deloitte was its auditor at that time, and the audit fee involved in that year was 5.5 million yuan.
Photo Source: Sinotrans Overseas Regulatory Notice, March 21, 2017
Photo Source: Sinotrans’ Announement of the Group’s Results for the Year Ended 31 December 2016 ‘, 21 March 2017
According to the PPT, the violations disclosed by the whistleblower mainly occurred between 2016 and 2018.
Picture source: Internet report PPT
Most of the whistleblowers mentioned violations in the 2016 annual audit of Sinotrans during the period of November 7, 2016 solstice and November 25, 2016. The whistleblower pointed out that the conduct of Deloitte personnel has seriously deviated from the audit professional ethics. The details are as follows:
1. Wu Mengzhi, the person in charge of the audit site, required the informant to send the samples directly to the financial staff of Sinotranshipment Yantai, and asked them to send them directly after filling in the relevant information (i.e., the audit procedure was not implemented, and the airplane was released). He also told the informant to talk about this matter by phone instead of leaving evidence by email.
2. The auditor Liu Xiaoxu directly sent the sample form she was in charge of to Xu Mei, the financial staff of Qingdao warehouse code, and asked her to return the sample form after it was filled out without carrying out the corresponding audit procedure (releasing the plane). Then Xu Mei, the financial staff of Qingdao warehouse code, returned the completed sample form to Liu Xiaoxu. Liu Xiaoxu revealed to the informant: the audit work of the plane is very common, drawing by general check not out of the problem, do not need to seriously drawing by, can be appropriate to put the plane.
3. When carrying out the voucher execution work of Sinotrans Shandong Branch, the informant was again asked by the audit team to release the plane, and was ordered to send the sample form directly to Sinotrans staff and send it back after it was completed.
Secondly, the informant focused on the United States listed companies red yellow blue audit violations. According to public information, Red Yellow Blue and its predecessor, founded in 1998, have nearly 1,300 parent-child kindergartens and nearly 400 high-quality kindergartens, providing high-quality preschool education guidance and services for children and families aged 0-6 years. On September 27, 2017, Red Yellow Blue was listed on the New York Stock Exchange.
It is better known as the “Red, Yellow and Blue Child Abuse Incident” that broke out in 2017. At the end of November that year, a kindergarten teacher in Chaoyang District, Beijing, which is owned by “Red, Yellow and Blue”, stabbed a child and gave him an unknown white pill. The incident triggered huge public opinion, and the kindergarten teacher involved was sentenced to one year and six months in prison.
The informant was involved in auditing violations that took place in 2017. The informer pointed out that during the audit of Deloitte Touche Toche on June 19, 2017, it was found that the date or amount in many previous manuscripts were not consistent with the actual certificates. Later, Zhang Zhao, head of the project team, asked Zhang Zhao, and she said that you don’t need to be so careful and just fill in the data. When asked what to do if the sum cannot match, Zhang Zhao said they just type Y, adding that the date and amount in many of their manuscripts were made up casually. The informant pointed out that sampling as an important audit procedure plays a very important role in finding possible fraud problems.
The former colleagues of the whistleblower also found that the management expenses of the Beijing Training School affiliated to Red Yellow Blue were basically reimbursement for the overseas consumption of the children of the senior executives and the chairman, such as a large number of management’s overseas shopping, outlet consumption, the founder’s son’s high consumption in New York, learning golf and other expenses. Deloitte managers and partners identified this problem in the previous year’s audit, but in the following public audit, they listed overhead as an accounting item that did not require detailed testing, but was simply reviewed. The former colleagues of the whistleblower believed that the audit was a mere formality and was not responsible to investors and shareholders. And there may be many other hidden problems.
Picture source: Internet report PPT
In addition, former colleagues of the whistleblower pointed out that Deloitte’s environmental audit work in another Hong Kong-listed company, Boqi, was illegal. Allegedly boqi project in manufactory, audit found the universality of inventory impairment sign plate, a lot of inventory has reached impairment standard actually, however, deloitte manager Zhu Xiaobin don’t believe the fact that the colleagues discovered refused to provision for impairment loss, and sent to prison on the plate, it is concluded that the auditees inventory there is no abnormal report.
Jiemian News reporter learned that Boqi Environmental Protection was founded in June 2002, is a flue gas pollution control technology as the core, comprehensive provide desulfurization, denitrification, dust removal and other air pollutants control of comprehensive environmental protection engineering technology company. The company listed on the Hong Kong stock exchange in March 2018.
At this point, the whistleblower believes that there are serious problems in the audit quality of Deloitte, many auditors have forgotten the audit professional ethics, their own integrity, and even think that the draw is not important, almost no evidence of fraud. These behaviors seriously damage the order of domestic and foreign financial markets, affect the quality of audit reports, and bring huge risks to the investment decisions of the expected users of domestic and foreign financial statements.
The informant pointed out that the staff involved in the reported incidents are still engaged in the audit projects of A shares, H shares and US shares. The above behaviors concerning Deloitte’s indulgence and concealment of personnel involved in audit quality issues seriously damaged the order of domestic and foreign financial markets, affected the quality of audit reports, and brought huge risks to the investment decisions of expected users of domestic and foreign statements.
The whistleblower said it has submitted the information to the China Securities Regulatory Commission, the US Securities and Exchange Commission, Hong Kong Securities and Futures Commission and other regulators.