Swiss power equipment and automated technology manufacturer ABB has blamed lax controls as a main cause of the fraud and embezzlement exposed as its South Korean unit.
ABB “failed to provide adequate management oversight and review of the local treasury activities,” the company conceded in its annual report. “Management has concluded that these deficiencies in the operation of ABB’s internal controls constituted a material weakness.”
Last month, ABB announced that it had uncovered a “sophisticated criminal scheme” orchestrated by the treasurer of its South Korean unit, subsequently identified as Oh Myung-se who went missing on February 7. The company believes that Oh forged documents and colluded with third parties to steal from it
ABB uncovered the theft two days after he went missing and subsequently delayed publication of its latest annual report. The investigation, which involves both internal and external parties, “is progressing well,” said the company.
“ABB failed to safeguard physical access to the signature seals of the subsidiary in South Korea and prevent the company from being bound to unauthorised financial contracts, resulting in undetected financial obligations,” the company admitted. “We have started implementing disciplinary consequences and will continue to do so as appropriate.”
In its 2016 report released Monday, ABB estimated the funds misappropriated by the South Korean unit’s treasurer at US$103m in cash. It now believes that the fraud will reduce last year’s pretax profit by US$73m, against its original estimate of US$100m, on expected payouts from its insurance policies.
However, the control failures have added to the pressure on ABB’s chief executive officer (CEO), Ulrich Spiesshofer, who faces criticism from investors that the company’s structure is too sprawling and complex.
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