“Unraveling the Gaps: A Deep Dive into the Ministry of Public Security’s Exposé on Investment Management Failures in the Phúc Sơn Group Scandal”

Interest Groups’ ‘Hands-on’ Approach to Asset Valuation

According to investigators, the case at the Phuc Son Group revealed significant “loopholes” in investment management, bidding, and asset valuation, allowing individuals to exploit and inflate financial capabilities and embezzle state funds. The Ministry of Public Security’s Investigation Agency has proposed several solutions to tighten asset valuation, financial management, and bidding processes to prevent similar violations.

Specifically, the Investigation Agency stated that for many years, the Asset Valuation Councils at different levels have relied on valuation results from valuation companies as a basis for determining enterprises’ financial obligations when implementing investment projects. However, in reality, some individuals within these valuation companies (directors, valuers, etc.) have engaged in negative acts, influenced by interest groups, leading to deviations in asset valuation practices. These deviations occur when valuers intentionally collect inappropriate comparable data in terms of location and value similarity to issue valuation certificates with lower values. Consequently, the Asset Valuation Council approves and requests enterprises to fulfill their financial obligations to the state with lower amounts than stipulated, resulting in unjust benefits and causing losses to state assets and organizations.

According to the investigating agency, laws on construction investment and bidding require enterprises intending to become investors or construction contractors to meet specific requirements regarding revenue and owner’s equity, ensuring total investment levels and bid package values. However, many enterprises that do not meet these requirements collude with auditing companies to falsify financial statements and inflate revenue and owner’s equity to qualify for investment or bid approval.

When unqualified enterprises win bids, projects often face delays, extended implementation periods, or are resold, leading to budget leakage and state asset waste.

The case involving the Phuc Son Group and related entities exemplifies the collusion between construction contractors and project investors. The contractors are provided with insider information and bid estimates, creating conditions for them to win bids with extremely high prices, almost equal to the bid package estimates. In this case, the investors used material unit prices published by ministries, sectors, and localities but failed to consider the actual market prices of these materials, resulting in inflated project estimates that were not cost-effective and caused state budget leakage. Consequently, while state finances suffered losses, enterprises profited from the inflated estimates.

A Series of Recommendations to Plug the Loopholes

To address the above-mentioned loopholes, the Ministry of Public Security has made the following recommendations: The Ministry of Finance should supervise and promote transparency in the valuation activities of consulting companies, ensuring accuracy. They should also enhance independent inspections to prevent situations where valuation companies are influenced to deviate from state asset valuation results.

It is imperative to strictly control the audit results of auditing companies when confirming enterprises’ financial statements. This measure will prevent enterprises from taking advantage of inflated financial capabilities to meet bidding requirements or become investors.

To prevent the falsification of financial data, which leads to the selection of unqualified contractors, the Ministry of Construction should consider adjusting regulations on norms and unit prices to align more closely with actual market costs. This ensures that enterprises executing projects earn reasonable profits while adhering to budget-saving principles and avoiding inflated estimates that waste state assets.

The People’s Committees of provinces and cities should consider administrative penalties for valuation and bidding consulting companies involved in violations in this case, such as suspending business operations and revoking certificates of eligibility for business operations in valuation and bidding consulting services.