(Adds comment from CEO, CFO)
ZURICH, March 13 ABB said on Monday
that suspected fraud in South Korea cut its 2016 net income by
$64 million in a case that prompted the Swiss power and
automation group and its auditor to conclude the company failed
to maintain effective internal controls.
It revised net income to $1.89 billion, ABB said in its
annual report, down from $1.96 billion reported in February. The
pre-tax impact was $73 million, less than the roughly $100
million previously reported, due to insurance recoveries.
ABB has said a South Korean treasurer engaged in a
"sophisticated criminal scheme" to embezzle millions from the
company before disappearing. The treasurer, identified as Oh
Myeong-se, is still being sought by authorities.
Auditor Ernst & Young concluded "ABB Ltd has not maintained
effective internal control over financial reporting as of
December 31, 2016," according to the annual report.
ABB acknowledged the shortcomings, citing inadequate
management oversight of the Korean subsidiary's treasury
activities that failed to uncover the fraud before the damage
"ABB did not maintain adequate segregation of duties in the
treasury function in its South Korean subsidiary and failed to
identify certain inappropriate access levels to the local
enterprise resource planning system," Chief Executive Ulrich
Spiesshofer and Chief Financial Officer Eric Elzvik wrote in a
joint letter to shareholders.
"ABB's internal control over financial reporting was not
effective," they said.
Elzvik is being replaced by former Nokia CFO Timo
Ihamuotila, a move announced by ABB last year.
Spiesshofer's compensation package rose to 9.3 million Swiss
francs ($9.2 million) in 2016, the annual report said, from 9.1
million francs the previous year.
Elzvik's pay package fell to 3.1 million francs from 3.3
($1 = 1.0107 Swiss francs)
(Reporting by John Miller; Editing by Michael Shields)