Audit board blames KDB for Daewoo fraud debacle

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Audit board blames KDB for Daewoo fraud debacle

Korea Development Bank, the main creditor and the largest stakeholder in troubled Daewoo Shipbuilding and Marine Engineering, failed to properly oversee and manage the shipbuilder, allowing it to not only continue with its reckless management but also cook its books, the state audit agency said.

The Board of Audit and Inspection of Korea on Wednesday said KDB was responsible for the current debacle at the shipbuilder, particularly as its analytical system established in early 2013 to detect irregularities in the balance sheets failed its purpose.

The BAI added that the balance sheets in 2013 and 2014 were questionable and demanded clarification from the shipbuilder. In fact, the auditing agency said in reviewing 40 offshore plant projects, DSME didn’t include additional costs that can be generated during the course of building, such as blueprint changes. During those two years, the shipbuilder overstated its operating profit by 1.53 trillion won ($1.27 billion) and its net profit by 1.16 trillion.

In 2013, the company reported an operating profit of 424.2 billion won when it actually lost 16.5 billion won. Similarly, in 2014, 639.2 billion won in losses were reported as 454.3 billion won in operating profit.

KDB ignored the warning signs and thus failed to properly detect the worsening insolvency and act appropriately, the auditors said.

“It is said that even accounting firms have difficulty spotting such acts [of cooking books by excluding additional costs],” said an official at the Board of Audit and Inspection of Korea.

“But if [KDB] looked more closely and had done their jobs in overseeing management they would have detected signs of insolvency.”

The auditing agency said DSME awarded 6.5 billion won in performance bonuses to high-ranking employees, including the CEO, as well as 198.4 billion won to its employees in the two years, based on wrongful calculations.

In the meantime, DSME’s troubles continue. The prosecutors’ special corruption investigation team has requested an arrest warrant for a CEO of DSME’s business partner. The chief executive, who was identified only by his family name Chung, runs a logistics company suspected of receiving numerous kickbacks from former DSME CEO Nam Sang-tae, who is a college friend. The associate is accused of embezzlement as well as tampering with evidence.

Korea Exchange also suspended the shipbuilder’s stock exchange temporarily on Wednesday until the shipbuilder explains reports of a former employee’s embezzlement. Daewoo later said in a statement it has filed lawsuits against the employee.

Trading resumed at 11:05 a.m. and the stock closed down 5 percent to end at 4,300 won.

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