Xilimen subsidiary's 100 million yuan funds "disappear without a trace," revealing multiple governance loopholes

How Does the Funding Gap at Xitu Technology Reflect Internal Control Risks in Family Businesses?

Xilinmen (603008.SH) has unveiled the chaotic state of fund management at listed companies through a public announcement.

On the evening of March 27, Xilinmen announced that its holding subsidiary Xitu Technology Co., Ltd. (hereinafter referred to as Xitu Technology) had illegally transferred 100 million yuan in funds through internal personnel abusing their positions. The company urgently froze related accounts totaling 900 million yuan, with involved and frozen funds exceeding 1 billion yuan, accounting for 26.54% of the company’s most recent audited net assets and 42.69% of its monetary funds.

This seemingly isolated case of fund misappropriation reflects multiple deep-seated issues behind the company’s subsidiary management, fund allocation, internal control system, and even family governance model. The 2025 annual report, which is set to be disclosed on April 25, will face a dual test of auditing and internal control due to this incident.

Small Subsidiary Exposes Major Funding “Gap”

The core entity involved in this fund “theft,” Xitu Technology, is a wholly-owned subsidiary established by Xilinmen in January 2021, with a registered capital of 50 million yuan. As of 2024, the business registration shows that it has only 8 employees and is located in the Xiaoshan District of Hangzhou, Zhejiang Province.

This small subsidiary surprisingly holds over 100 million yuan in monetary funds on its books, which is 200% of its registered capital and nearly 20% of the total monetary funds of all subsidiaries under Xilinmen. According to the company’s 2025 mid-term report, the listed company has a consolidated monetary fund of 1.972 billion yuan, with the parent company holding 1.444 billion yuan, while all subsidiaries combined have approximately 530 million yuan in cash.

It remains unclear when exactly this 100 million yuan was transferred, whether it was a one-time transfer or multiple transfers. Financial professionals point out that if it was a one-time transfer, what was the level of authorization for such a large transaction? If it was transferred multiple times, why was it not discovered in the early stages of the incident? If it was done in smaller amounts to evade oversight and internal monitoring, it reflects serious flaws in the enterprise’s fund monitoring system. Typically, a large fund transfer requires approval from the financial director, general manager, or even the board of directors, and cannot be executed independently by a single individual.

After the incident, Xilinmen reported the case to law enforcement on March 26 and implemented protective account freezes. The company stated that this freeze was a self-initiated action that would temporarily affect the subsidiary’s use of funds but would not significantly adversely affect overall production and operations. It is currently cooperating with police investigations and advancing efforts to unfreeze and recover the funds.

Notably, Xitu Technology’s legal representative, Zhou Yaying, stated to the media that she is merely a nominal legal representative, a detail that further highlights the chaos in personnel management at this subsidiary.

On March 27, the Shanghai Stock Exchange quickly issued a regulatory work letter concerning this matter, targeting the listed company itself, its directors, senior management, as well as the controlling shareholder and actual controller.

It is worth noting that the company’s stock price has dropped over 22% cumulatively over the past six trading days. The market has yet to establish a direct link between the company’s recent stock price performance and the funding “theft” incident.

A reporter from Yicai called Xilinmen’s chairman and founder, Chen Ayu, in an attempt to verify the cause of the incident, but the call went unanswered.

Xitu Technology’s Positioning: Core Platform for Hotel Channels, What Became a Risk “Black Hole”?

From a business positioning perspective, Xitu Technology is not an ordinary subsidiary but rather the core strategic platform for Xilinmen’s hotel engineering channel. It is the sole entity responsible for the development and operation of this channel, functioning as the “front end” of the hotel engineering business. Complementing this is the “back end” entity responsible for hotel furniture production and manufacturing under Xilinmen—Xilinmen Hotel Furniture Co., Ltd., together forming the structure of “1 core platform + 1 production support entity” for the hotel engineering channel.

Public information shows that Xilinmen’s hotel engineering channel has entered into partnerships with major brands such as InterContinental Hotels (IHG.N), Marriott International (MAR.O), Jinjiang Hotels (600754.SH), Huazhu (HTHT.O), Shoulu Hotels (600258.SH), Dongcheng Group, Shangmei, Atour (ATAT.O), Kaiyuan Hotel Group, and Junting Hotel Group, with over 3,000 cooperating hotels, making it an important business growth point for the company.

Since its establishment, Xilinmen has never separately disclosed the performance and asset status of Xitu Technology in its periodic reports, nor has it itemized the sales amounts from the hotel and engineering channels. However, based on the business positioning described by the company, Xitu Technology should serve as the “cost center” rather than the “expense center” of the listed company.

The 2024 annual report indicates that Xilinmen’s parent company had sales revenue of 4 billion yuan, while the total sales revenue of all subsidiaries amounted to 4.7 billion yuan.

However, the parent company’s sales expenses were only 157 million yuan, while the consolidated sales expenses reached 1.87 billion yuan. This means that the subsidiaries collectively incurred over 1.7 billion yuan in sales expenses, accounting for more than 90% of the company’s total sales expenses.

Analysts believe that this sales revenue/expense structure indicates that the group’s budget and control of sales expenses have shifted down to the subsidiary level. The embezzlement of 100 million yuan at Xitu Technology is likely related to the significant autonomy in expense spending and fund allocation at this subsidiary.

Annual Report Test: Audit May Highlight Issues, How to Evaluate Internal Control

According to the plan, Xilinmen’s 2025 annual report is set to be officially released on April 25. Auditing professionals interviewed by Yicai stated that although the fund embezzlement incident occurred after the balance sheet date for 2025, classifying it as a subsequent event, it will not change the core financial data of the company’s 2025 financial report. However, this incident will still have distinctly different impacts on the annual report audit and internal control audit.

From the perspective of financial statement auditing, the embezzlement did not result in misstatements of the 2025 financial report figures, and the company has proactively disclosed relevant information. The auditing institution may still issue a standard unqualified audit report with an emphasis of matter paragraph regarding the financial report, alerting investors to this significant subsequent funding risk event and the potential impact of future fund recovery and account unfreezing on the company’s operations.

Additionally, the market still needs to pay attention to the company’s performance in the fourth quarter of 2025. The net profit attributable to the parent company in the first three quarters was 399 million yuan, a year-on-year increase of 6.45%. Whether the fourth quarter will see issues such as channel contraction or bad debt provisions due to the funding incident remains uncertain.

On the internal control audit front, this incident constitutes a significant deficiency in the internal controls over financial reporting. Auditing professionals indicate that the illegal transfer of 100 million yuan reflects issues such as the failure of authorization and approval processes, insufficient separation of key positions, and the lack of monitoring mechanisms for large funds, and this flaw is not an isolated incident. According to the “Guideline for Internal Control Audits of Enterprises,” if there are significant deficiencies and the audit scope is not restricted, the audit institution should issue a negative opinion, even if the internal control audit is unqualified.

Industry insiders note that the deeply rooted family business governance model at Xilinmen has become a fundamental cause for the failure of its internal control system.

Xilinmen was developed from a family workshop by Chen Ayu in 1984 and remains a typical family-controlled listed company. The 64-year-old Chen Ayu is the actual controller, forming a “father-son power structure” with his son Chen Yicheng—Chen Ayu serves as chairman and legal representative, while Chen Yicheng is the general manager and vice chairman. Family members also occupy non-independent director positions on the board, with other core positions held by trusted individuals of the actual controller, infusing family will throughout the company’s decision-making and operational processes.

Furthermore, the actual controller and their concerted actions currently hold a total of 36.36% of the company’s equity, with a high proportion of pledged shares.

(This article is from Yicai)