ZURICH (Reuters) - ABB lacked effective internal controls over parts of its financial reporting at the end of last year, Chief Executive Ulrich Spiesshofer said, resulting in reduced bonuses for some of its executive committee members.
ABB, which two years ago suffered a separate $100 million blow in South Korea linked to financial controls weakness, is in the process of remedying the latest shortcomings, a spokesman said on Monday. They were discovered by KPMG as the audit firm scrutinized ABB’s books for 2018.
The spokesman declined to describe the weaknesses in detail, calling them “certain IT failures” in some North American and group applications. He also did not say how long the weaknesses existed.
“These control failures did not lead to any financial misstatement and there was no need to restate numbers,” ABB said in a statement.
“However, the controls failures could have led to a potential misstatement of the company’s financial statements and are therefore called out as a material weakness.”
Among remedial plans for the 2018 weaknesses, ABB said it is boosting its risk-identification processes, training and trying to clearly communicate control responsibilities.
“We cannot be certain that the measures we have taken, and expect to take, will be sufficient to address the deficiencies identified or ensure that our internal control over financial reporting is effective,” ABB said in a U.S. Securities and Exchange Commission filing.
The failures have had financial consequences for ABB executive committee members, the Zurich-based company said.
Short-term incentives “reflected, for some executives, the material weakness in controls”, ABB said, without specifying which top managers were affected.
According to ABB’s annual report, Chief Executive Ulrich Spiesshofer’s short-term compensation fell to 2.1 million Swiss francs ($2.1 million) in 2018 from 2.4 million francs a year earlier. His total pay package slipped about 8 percent to 8.5 million francs.
Chief Financial Officer Timo Ihamuotila, who earned 3.5 million francs in 2018, saw his short-term compensation rise, while Americas boss Greg Scheu also saw an increase.
Three division leaders including Power Grids head Claudio Facchin saw their bonuses fall.
On average, ABB’s executive committee (EC) members including Spiesshofer hit 85 percent of performance objectives, the 2018 annual report showed, well off the 95.4 percent average in 2017.
This is the latest instance of financial controls problems at ABB in recent years. In 2017, the maker of factory robots, circuit breakers and switchgear replaced senior management in South Korea after an executive disappeared with $100 million.
($1 = 0.9948 Swiss francs)
Reporting by John Miller; Editing by Michael Shields and Keith Weir