Swiss engineering group ABB has admitted “material” failings in internal controls after taking a $73m pre-tax charge to its 2016 profits following a fraud in its South Korean subsidy.
Managers had failed to provide adequate oversight of local treasury activities and failed to prevent the company becoming bound to “unauthorised financial contracts,” ABB said in its annual report.
Last month, ABB said it had uncovered “massive criminal activity” at its South Korean subsidiary, with the Swiss engineering group accusing a senior employee of colluding with others to steal from the company.
At that time, ABB had expected a $100m loss but on Monday, the company said the figure had fallen to $73m as about $30m was expected to be recovered under insurance policies.
“Management has concluded that these deficiencies in the operation of ABB’s internal controls constituted a material weakness,” the annual report said.
Auditors Ernst & Young also wrote in a note that ABB had “not maintained effective internal control over financial reporting as of December 31, 2016.”
Ulrich Spiesshofer, ABB’s chief executive, saw his total compensation rise to SFr 9.3m in 2016, from SFr 9.1m in 2015.
ABB’s net income fell to $1.9bn last year from $1.93bn in 2015, while orders dropped to $33.38bn from $36.43bn, but ABB reported orders had risen in the final months of the year.