The Context
On 24 January 2026, the Chinese Ministry of National Defence announced investigations into two of its most senior military figures: General Zhang Youxia and General Liu Zhenli. The Central Military Commission (CMC) has been reduced from seven members to effectively two. At least eight senior generals were expelled in late 2025 alone. The root cause is a systemic failure in financial governance. Entrenched corruption practices and compromised procurement networks have created an unreliable audit trail. Internal reporting is considered broken. The strategic angle is clear: a sudden, massive influx of military spending created the prime conditions for this financial mismanagement. The liability hook is organisational instability. Past service confers no immunity.
The Risk
This is a textbook governance failure. For a New Zealand director, the parallels are numerical, not political. A surge in capital expenditure—whether from defence contracts, infrastructure stimulus, or post-disaster funding—creates identical risk vectors. The audit trail breaks down. Oversight fails. The dollar value of waste becomes material. Under the Companies Act 1993, directors have a duty to exercise reasonable care, diligence, and skill. A failure to establish robust financial controls during a period of rapid spending may indicate a breach of this duty. Personal liability attaches when governance gaps allow fraud or significant loss. The fines are calculable. Reputational damage is permanent. Your balance sheet becomes the evidence.
The Control
The solution is forensic governance. Treat a surge in spending as a high-risk audit event. Deploy targeted transaction monitoring. Insist on third-party validation of major procurement. Separate the authorisation and payment functions absolutely. The financial controls must be designed to withstand the pressure of accelerated timelines and political urgency. The audit committee’s mandate must be explicitly strengthened to oversee this specific expenditure stream. This is not about compliance; it is about preserving the integrity of the financial record.
The Challenge
These are the critical questions you should be raising at the board table:
| What specific, anomaly-based transaction monitoring have we implemented for the current high-expenditure programme, and what is the false-positive rate? | |
| Can the audit committee trace, with documentary evidence, the full decision chain for the last five major procurements, from business case to bank payment? | |
| What is the quantified materiality threshold for fraud, waste, or error in this programme that would trigger a mandatory report to the board and potentially regulators? |