Chinese charity caught in financial statement controversy

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A charity foundation for children in China has issued an open apology over an accounting mistake that triggered money laundering allegations, but public confidence in charity has nevertheless been eroded by the affair.

The controversy emerged after political pundit Zhou Xiaoyun posted the financial statement of the China Charities Aid Foundation for Children (CCAFC) onto Sina Weibo, China's Twitter-like microblog service, and raised suspicions it had engaged in money laundering.

Citing the CCAFC's 2011 financial statement, which he said he had acquired legally, Zhou questioned online the whereabouts of around 4.8 billion yuan listed as cash payments.

His claims immediately drew public attention, and the message has been forwarded more than 7,000 times on Sina Weibo. Many voiced their anger and asked the organization to explain the situation to the public.

"This is not a small sum. People from the CCAFC need to explain to us what happened," wrote a blogger with the screen name "zatanweiba."

"I will never donate my money to any charity organizations in the future," added "maizideniang."

In response to the criticism, the CCAFC publicly apologized on Tuesday, attributing the disputed cash flow to an accounting mistake regarding other monetary assets, and uploaded a statement detailing the movement of other monetary assets on its official website as evidence.

The foundation's full cash-flow statement, balance sheet and income statement, which may offer a clear explanation of its financial activities, however, are not available to the public.

Jiang Ying, a representative for the CCAFC, told Xinhua over the phone that a serious accounting mistake was to blame for the controversy.

"Our financial staff mistakenly listed 4.75 billion in the foundation's aggregate accrual for short-term wealth management, but the amount should be 475 million," she said.

That inflated the figure under the item of other cash inflow and indirectly distorted the other cash payment, according to Jiang.

The CCAFC representative added that the item of other cash inflow does not refer to the actual asset-management earnings, and there is no money laundering.

The item actually reflects the cumulative number of the cash the foundation has put into banks for short-term assets management, she said.

In its public apology, the foundation explained that purchases of short-term wealth management products from banks were "prudently made" to "increase revenue, reduce the proportion of operating outlays to donations and provide better assistance to the needy."

"These deals can be traced on the statement published on our website," said Jiang.

According to Jiang, the foundation channelled some 30 million yuan to short-term asset-management last year and earned nearly 1.08 million yuan.

As the foundation's full cash-flow statement is not available to the public, however, the newly revealed earnings only aggravated netizens' suspicion of the foundation's capital flow. They asked for verified bank statements.

"It's hard to believe that a member of financial staff would make such a mistake," wrote blogger "xiantao" on Weibo.

"Where did all the donations go? How much went to poor orphans?" a blogger screennamed "manyouzhelizi" wrote.

Auditor Beijing Zhongzheng Tiantong Certified Public Accountants (BZTCPA) admitted it failed to detect the mistake, the Beijing News reported on Tuesday, citing Li Zheng, BZTCPA's assistant chief public accountant.

According to the cash-flow statement revealed by Zhou Xiaoyun, the foundation received 82 million yuan in donations last year. Of the total, 45 million yuan was donated while 1.83 million yuan went to employee salaries, and about two million was used for purchasing services.

But these figures, together with the whereabouts of the money under the item of other cash, are yet to be confirmed by the foundation.

Zhu Lijia, a professor with the Chinese Academy of Governance, said that China needs to further improve its laws and regulations for more effective supervision of non-profit organizations.

"More specific stipulations are needed to guarantee openness and transparency in organizations like the CCAFC," Zhu said.

He also called on regulators to scrap the requirement of having non-profit organizations affiliated to governmental departments and to equip the public with more effective supervisory means.

A series of scandals have hit charity organizations in China in recent years, causing public outcry for more transparency in China's charity work.

Most notably, the Red Cross Society of China (RCSC) came under fire in 2011 after a young woman calling herself "Guo Meimei" claimed in microblog posts that she worked for an organization under the RCSC and detailed her lavish lifestyle. That led some netizens to suspect she was embezzling funds.

Donations to the RCSC plummeted 59.39 percent year on year in 2011, according to official data.

(Xinhua contributed to this story)

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