From financial fraud to state-owned capital involvement, Shandong Zhanggu's 8.46 million yuan false profit reduction case questions the risk control red line

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Source: Risk Radar

一、Boots Drop: A Rare “Reverse Falsification” Event

According to Ji Mian Financial News, on April 3rd, Shandong Zhanggu (rights protection) (002598.SZ) announced that due to false records in the 2024 annual report, the company will be subject to other risk warnings, and its stock abbreviation will change to “ST Zhanggu.” At the same time, the Shandong Securities Regulatory Bureau plans to impose a total fine of 6.9 million yuan on the company and relevant responsible persons, with the father-son duo Fang Rungang and Fang Shupeng, who have led Shandong Zhanggu for years, fined a total of 2.6 million yuan.

Unlike the common profit inflation in capital markets, Shandong Zhanggu this time was caught by a rare “reverse falsification”—reducing profits to cross the compliance red line.

The “Administrative Penalty Notice” issued by the Shandong Securities Regulatory Bureau shows that in 2024, without actual occurrence of maintenance, technical services, and other businesses, Shandong Zhanggu confirmed related sales expenses and management expenses totaling 8.4627 million yuan, leading to false records in the annual report, with a total fictitious profit reduction of 8.4627 million yuan, accounting for 10.37% of the disclosed profit for that period.

This means that 8.4627 million yuan of profit disappeared from the books through false contracts, with the actual flow of funds unknown.

In terms of penalties, the Shandong Securities Regulatory Bureau plans to order the company to correct, issue a warning, and impose a fine of 2.5 million yuan; for Fang Shupeng, Shen Chunfeng, Fang Rungang, and Zhao Xiaofen, warnings and fines of 1.8 million yuan, 1 million yuan, 800k yuan, and 800k yuan respectively will be issued.

Among them, Fang Shupeng, then co-chairman, general manager, and legal representative, made decisions on the above expense handling matters and is the direct responsible person; Shen Chunfeng, then head of the Turbine Business Division and Electrical Business Division, organized the implementation of the above matters; Fang Rungang, then chairman, was negligent; Zhao Xiaofen, then CFO, knew about the expense handling but failed to fulfill her due diligence.

二、Restoring the Process: Why Is Financial Falsification “Reverse Operation”?

（一）Event overview: fictitious maintenance and technical service contracts, 8.46 million yuan profit vanishes out of thin air

According to investigations, in 2024, without actual occurrence of maintenance, technical services, and other businesses, Shandong Zhanggu confirmed related sales and management expenses totaling 8.4627 million yuan. Evidence such as inquiry records, explanations, bank statements, expense reimbursement forms, and relevant contracts support this fact. From the method, this is a typical financial fraud involving fictitious expense payments—by creating fake maintenance and technical service contracts, the company recorded expenses to lower its book profits.

It is worth noting that this is not the first time Shandong Zhanggu has touched regulatory red lines. In December 2025, the company was already ordered to correct issues related to related-party transaction review and information disclosure violations, illegal use of raised funds, and poor corporate governance by the Shandong CSRC. Just half a month later, the company was formally investigated by the China Securities Regulatory Commission for suspected violations in periodic report financial disclosures. A few months of regulatory accountability reveal deep internal control flaws.

（二）Why “reverse falsification”? Analysis of motives

Common motives for listed companies to reduce profits include: avoiding taxes; hiding profits to create a “performance reservoir” for smoothing future fluctuations; concealing the actual flow of funds to realize benefit transfer; covering up illegal use of fundraising or related-party fund occupation.

Considering Shandong Zhanggu’s governance structure, a more concerning possibility is: the 8.4627 million yuan flowing out under the guise of “maintenance and technical services” was likely achieved through fake contracts, ultimately flowing into related interests of internal personnel. As experts pointed out, based on subsequent findings, this behavior may also involve violations such as illegal disclosure of material information, tax evasion, fake invoicing, embezzlement, and misappropriation.

（三）Strict regulation: Financial fraud is no longer “the state of 20 years ago”

The current regulatory environment is far from what it was 20 years ago. In 2025, over 80 A-share listed companies received regulatory penalties, with 12 facing mandatory delisting for major violations. The CSRC’s penalty logic has shifted from leniency to strict punishment, with maximum fines for violations of information disclosure rules increased to 10 million and 5 million yuan respectively. In the *ST Dongtong case, after four consecutive years of fictitious transactions and inflated revenue of 432 million yuan, the company was fined 229 million yuan, and its actual controller was banned from market participation for 10 years.

More critically, third-party entities involved in facilitating fraud are also being held accountable. In the *ST Gaohong case, the controlling party of the third-party involved was fined 7 million yuan and banned from market participation for 10 years.

Meanwhile, the “Regulations on the Supervision and Administration of Listed Companies (Draft for Public Comments)” issued in December 2025 established a full-chain mechanism of “source prevention + process monitoring + post-incident accountability,” explicitly prohibiting listed companies from fabricating transactions or abusing accounting policies to prepare false financial reports, and requiring the board to recover compensation and dividends paid based on false reports.

Financial fraud is no longer just subject to administrative penalties. For Shandong Zhanggu, this incident has led to the company being designated as ST, losing refinancing eligibility, and facing huge risks of collective investor lawsuits.

三、Risk Control Reflection: Why Did Financial Fraud Occur at Shandong Zhanggu?

（一）Imbalance in governance structure: Long-term “family dominance” weakens checks and balances

For a long time, Shandong Zhanggu has operated under a “state-owned shareholding but non-participation in operations” model, with governance mainly led by the “Fang family.” Fang Rungang holds 9.85% of shares, his son Fang Shupeng 0.10%. Although the largest shareholder is the state-owned Jinan Zhangqiu District Public Asset Management Co., Ltd., with 29.80%, it has long held only one seat on the board. This separation of ownership and control, along with the state’s “holding but not controlling” pattern, effectively disables internal checks and balances.

（二）Key minority power abuse: Management overriding internal controls

Fang Shupeng, as co-chairman, general manager, and legal representative, directly decided on expense matters; Shen Chunfeng, as division head, organized the fake contracts; Zhao Xiaofen, CFO, knew about this but did not stop it. This indicates that from the front end of business to the back end of finance, key nodes in the fraud chain are directly manipulated by management, and internal controls have failed to effectively constrain “key minorities.” As experts pointed out, this incident exposes major governance flaws, with internal controls rendered ineffective and a risk of management overriding internal controls.

（三）Failure of financial internal controls: Expense approval process lacks substantive review

How did 8.4627 million yuan in maintenance and technical service expenses, with no real business, pass through layered approvals, get reimbursed, and recorded? From expense forms to bank statements and contracts, all have written documentation, but this shows the company’s expense approval mechanism has become a formality—only verifying the presence of documents, not the authenticity of the business. The finance department also failed to verify the acceptance of services or the qualifications of suppliers.

四、Listed Company Risk Control Regulations

The following risk control regulations are divided into “Governance Structure and Key Minority Constraints,” “Financial and Internal Control Processes,” and “Compliance Culture and Supervision Accountability,” which can be directly incorporated into the internal control system by the board of directors.

【Chapter 1: Governance Structure and Key Minority Constraints】

Article 1【Mandatory establishment and substantive operation of the Audit Committee】

Listed companies’ boards must establish an audit committee, with members not holding senior management positions, more than half being independent directors, and the convener being a professional accountant among independent directors. Regular reports must be approved by the majority of the audit committee before submission to the board; unaudited financial reports cannot be disclosed. The audit committee must hold at least four formal meetings annually, with complete records. Independent directors’ questions on financial matters must be truthfully recorded in the minutes and closed-loop handled.

Article 2【Constraints on key minority power】

Shareholders holding controlling stakes, actual controllers, directors, and senior managers shall not interfere with the company’s financial approval process. Any unusual expenses exceeding 500k yuan must be reviewed by the audit committee in advance. The general manager shall not directly approve any business contracts involving themselves or close relatives.

Article 3【Independent director supervision mechanism】

Independent directors shall constitute at least one-third of the board and include at least one accounting professional. They shall perform key supervisory duties over: the truthfulness and completeness of annual financial reports, fairness of major related-party transactions, and whether the controlling shareholder engages in benefit transfer. Independent directors have the right to hire external agencies for special audits of financial matters, with costs borne by the company.

Article 4【Fund flow closed-loop monitoring system】

The company shall establish a fund outflow monitoring system, with all external payments linked to corresponding contracts, acceptance forms, and invoices, and payments only made after third-party verification of contract fulfillment. Monthly financial flow analysis reports shall be issued, focusing on anomalies in “consulting fees,” “technical service fees,” “maintenance fees,” “conference fees,” etc. If monthly or year-over-year increases exceed 20% in any category, a special review shall be initiated.

【Chapter 2: Financial and Internal Control Processes】

Article 5【Three-level expense approval firewall】

Level 1 (business side): Expenses must be supported by genuine business documents, such as contracts, service confirmation forms, acceptance reports, etc., with the department head bearing primary responsibility for authenticity. Level 2 (finance side): Finance must independently verify invoice authenticity, contract compliance, and approval process completeness, and substantively review supplier qualifications and scope. Level 3 (internal audit): Internal audit shall randomly check at least 10% of monthly expense reimbursements, focusing on large, abnormal, or new suppliers. Any issues found at any level can halt payments.

Article 6【Dynamic management of suppliers and related parties】

The company shall establish and continuously update a list of related parties and a whitelist of core suppliers. All new suppliers must be approved by the procurement committee before payment. All transactions with related parties, regardless of size, must be reviewed and disclosed by the audit committee in advance. Shell companies with no actual operations or core business shall be prohibited; once discovered, cooperation shall be terminated and internal accountability initiated.

Article 7【Contract lifecycle management system】

The company shall implement an electronic contract management system covering the entire process from initiation, approval, signing, performance, acceptance, to payment. Contract information shall be automatically linked to the financial system. Any payments exceeding the budget or contract amount require special approval from the audit committee. Service completion milestones must be verified with deliverables, not just internal approval forms.

Article 8【Multi-layer review mechanism for financial reports】

Annual reports shall go through “financial department preparation → audit committee preliminary review → external independent audit → audit committee final review → board deliberation,” with five layers of review. The audit committee shall form separate opinions on major accounting treatments and keep records for future reference.

【Chapter 3: Compliance Culture and Supervision Accountability】

Article 9【Recourse mechanism for senior management compensation】

According to the “Regulations on the Supervision and Administration of Listed Companies,” if the company needs to restate financial reports due to fraud, the board shall recover profits and compensation paid to responsible shareholders and their concerted parties based on false reports, as well as salaries and equity or options received by responsible directors and senior managers.

Article 10【Comprehensive compliance training and reporting channels】

All directors, supervisors, senior managers, and key personnel in finance, procurement, sales, etc., must complete at least 4 hours of financial compliance training annually, covering legal consequences of fraud, typical case warnings, and internal control procedures. The company shall establish an anonymous reporting channel independent of management, with strict confidentiality. Rewards of 1%-5% of recovered losses shall be given for verified reports.

Article 11【Layered accountability and red line system】

Financial fraud shall be subject to layered accountability: those directly involved or implementing the fraud shall be dismissed and transferred to judicial authorities; responsible finance, legal, and internal audit heads who fail to report shall face demotion, salary reduction, or termination; independent directors and supervisors who neglect supervision shall publicly explain and resign. The company regards “fictitious contracts,” “forged financial vouchers,” and “collaborating with third parties in fraud” as red lines—anyone crossing them will be dealt with severely without exception.

Article 12【Regular internal control self-assessment and external audit rotation】

The company shall commission independent third-party agencies annually to evaluate internal control effectiveness, with reports submitted to the board and disclosed to shareholders. External auditors shall not be engaged for more than five consecutive years, and must submit risk assessments indicating management’s overriding of internal controls each year.

This case of Shandong Zhanggu again confirms that financial fraud is no longer just “technical accounting adjustments,” but a deadly blow to the company’s life line. For listed companies, risk control is not a choice but a red line that must be upheld. Only by embedding these risk control systems into every aspect of corporate governance can the integrity of the capital market be maintained and the emergence of the next “ST Zhanggu” avoided.

Finally, using AI large model RiskRaider to assess the risk level of Shandong Zhanggu, some screenshots are shown below: