The Exploration And Practice Of The Reform Of The Financial Management System In PetroChina South China Marketing Company

Since China's WTO accession most Chinese enterprises have been confronted with such problems as mounting global competition and shrinking domestic margins. In order to ensure their domestic market share as well as securing a position on the international arena many Chinese enterprises, the state-owned ones in particular, strive to sharpen their competitive edge through overseas listing, global fund raising and introduction of international managerial expertise. PetroChina South China Marketing Company (hereinafter referred to as"the Company") began to reform its financial management system in compliance with PetroChina's reformation of the refined oil marketing regime. Instead of copying models from its foreign counterparts, the Company bases its new financial management system on international practices without overlooking its specific business environment.A review of the setup and development of the new system would give some clues for China's refined oil product retailers who wish to make their financial management infrastructure more integrated with global standards. The new system, guided by advanced financial management concepts, entails setting up a financial institution that adopts a method characterized by centralized accounting, zero inventory, vertical budgeting, centralized capital management, consolidated tax payment at the provincial level and total financial audit.I. The functional structureA financial division is established at the Company's headquarters, with different extensions, or entry points as they are called, at different retail regions. These entry points have no decision-making power in accounting and funds management apart from executive rights. Within the financial division there are seven sub-divisions and twenty three positions specialized in different areas of responsibilities. Accordingly specialized positions for funds settlement, accounting, etc. are established at entry points that are equivalents to those at the financial division, each with responsibilities and functions clarified.II. Centralized accountingThe Company employs an FMIS6.0 system, a centralized and integrated accounting system that uses only one account for three provinces, putting an end to the previous system with three levels of accounting units within different provinces and cities.III. Zero inventory for refined oil productsApart from centralized accounting and consolidated tax payment separately done in the provinces of Guangdong, Fujian and Hainan, the Company adopts a zero inventory approach for its refined oil products. Administratively Level One oil depots, other depots of wholly-funded subsidiaries and share-holding subsidiaries, or Level Two depots, and gas stations are managed by the Company's resource storage division whereas financially the internal allocation and transfer of refined oil products among the above mentioned depots and gas stations are handled as internal transfer, rather than as sales.IV. Vertical budgetingThe Company takes a vertical reform approach in its budget management. By this way budget quotas are allocated to different divisions each responsible for its own budget management and control, while financial personnel are chiefly tasked to monitor, analyze and report on the budget performance besides providing guidance on budget planning for non-financial divisions, thus effectively separating administrative rights and financial power. V. Centralized capital managementA capital settlement center is established in the financial division to manage capital in a way of separate channeled receipts and expenditures. The bank accounts for wholly-funded oil depots and gas stations (hereinafter referred to as"wholly-funded units") were closed and replaced by respective bank accounts of the entry points. Additionally the bank accounts for non wholly-funded units also fall within the scope of control of the entry points. By so doing, the previous multi-level accounts are greatly reduced with fund transfer being done directly rather than done multi-levelly by different provinces, cities, depots and gas stations, as was the case with the old system.VI. Consolidated tax payment at the provincial levelIn spite of abolition of decision making power in financial management for the subordinates, taxes shall still be declared and paid locally with the provincial and city-level subsidiaries and gas stations being independent tax entities, as is stipulated by the Taxation Law of China. Presently the Company adopts a consolidated tax payment approach that has its value added taxes declared and paid at the provincial level. Value added taxes are calculated and allocated by the financial division to provincial and city-level subsidiaries, who in turn shall declare and pay the value added taxes and related surtax respectively to the local tax authoritiesVII. Audit and financial controlThe Company has in place a fully developed system in financial audit and control with an audit division at the headquarters and personnel responsible for the same area at each retail region.In short the Company's new financial management system simplifies the former hierarchical system and enables vertical management of financial affairs. A cohesive segmentation of responsibility has made possible a highly qualified and efficient workforce that ensures full implementation of every decision from the financial division while the FMIS6.0 system builds up an effective and convenient financial information network that meets demands from managers and decision makers. The centralized funds management model provides a possible solution to salient problems in corporate finance, such as how to ensure capital flow, efficiency and safety. Additionally the specialization of financial audit and control guarantees that financial regulations are carried out to the letter.The present thesis reviews the establishment and operation of a financial system based on the practices of the Company and presents some possible solutions for retailers of domestic refined oil products and other areas to integrate their financial infrastructure more closely with international practices.