KDB no longer capable of overseeing Daewoo
It is no longer news that Korea's public enterprises, which are often called "god's workplace," are notorious for complacency and corruption. However, the problems of Korea Development Bank (KDB), which were revealed through the state auditor's announcement on the debacle at Daewoo Shipbuilding and Marine Engineering (DSME), left people speechless.
The Board of Audit and Inspection (BAI) said Wednesday that the world's second-largest shipbuilder overstated its operating profit by 441.7 billion won in 2013 and 1.1 trillion won in 2014 by underestimating the production cost of offshore energy platforms. In 2013, the company reported an operating profit of 424.2 billion won when it actually lost 16.5 billion won. Likewise, in 2014, a 639.2 billion won operating loss was reported as an operating profit of 454.3 billion won.
Based on the accounting manipulation, Daewoo handed out more than 200 billion won in performance-based pay to its executives and employees. Last year when the company was suffering big losses, its employees were also offered 87 billion won in bonuses.
Not surprisingly, this cash binge was possible as KDB, the main creditor and the largest shareholder of Daewoo, failed to detect irregularities in the balance sheets. If the policy lender had overseen the shipbuilder properly, signs of insolvency at Daewoo could have been detected much earlier, which would have made it possible to advance the company's restructuring and consequently reduce the infusion of public funds.
KDB also approved all requests to increase operating funds, lured by Daewoo's unilateral argument for better cash flow, although delivery of offshore energy platforms had been delayed repeatedly.
The state audit agency blamed KDB for its lax oversight of Daewoo, saying the shipbuilder incurred losses of more than 900 billion won by investing in unrelated businesses. It's dumbfounding to hear that KDB officials sent to Daewoo and its affiliates routinely paid for golfing and entertainment expenses, on the weekends, with corporate credit cards offered by Daewoo.
The number of companies that came under KDB's wing through debt-to-equity swaps soared from five in 2001 to 49 in 2014. The state bank allegedly poured nearly 4 trillion won into them during the period, but most of the companies slipped into insolvency again because of the bank's lax oversight. All this explains why KDB is no longer capable of overseeing Daewoo and other companies under its jurisdiction.
What is most pitiable is that the government remains lukewarm to calls for punishing former and incumbent KDB executives even after the BAI laid bare the state bank's responsibility for the Daewoo crisis fully. This betrays a promise last month by Financial Services Commission Chairman Yim Jong-yong that it would hold KDB officials responsible according to the findings of the BAI audit.
To prevent the kind of debacle that hit Daewoo, it's crucial to throw the book at all those concerned. The prosecution should do its utmost to get to the bottom of Daewoo's insolvency and bring those responsible to justice.
It is no longer news that Korea's public enterprises, which are often called "god's workplace," are notorious for complacency and corruption. However, the problems of Korea Development Bank (KDB), which were revealed through the state auditor's announcement on the debacle at Daewoo Shipbuilding and Marine Engineering (DSME), left people speechless.
The Board of Audit and Inspection (BAI) said Wednesday that the world's second-largest shipbuilder overstated its operating profit by 441.7 billion won in 2013 and 1.1 trillion won in 2014 by underestimating the production cost of offshore energy platforms. In 2013, the company reported an operating profit of 424.2 billion won when it actually lost 16.5 billion won. Likewise, in 2014, a 639.2 billion won operating loss was reported as an operating profit of 454.3 billion won.
Based on the accounting manipulation, Daewoo handed out more than 200 billion won in performance-based pay to its executives and employees. Last year when the company was suffering big losses, its employees were also offered 87 billion won in bonuses.
Not surprisingly, this cash binge was possible as KDB, the main creditor and the largest shareholder of Daewoo, failed to detect irregularities in the balance sheets. If the policy lender had overseen the shipbuilder properly, signs of insolvency at Daewoo could have been detected much earlier, which would have made it possible to advance the company's restructuring and consequently reduce the infusion of public funds.
KDB also approved all requests to increase operating funds, lured by Daewoo's unilateral argument for better cash flow, although delivery of offshore energy platforms had been delayed repeatedly.
The state audit agency blamed KDB for its lax oversight of Daewoo, saying the shipbuilder incurred losses of more than 900 billion won by investing in unrelated businesses. It's dumbfounding to hear that KDB officials sent to Daewoo and its affiliates routinely paid for golfing and entertainment expenses, on the weekends, with corporate credit cards offered by Daewoo.
The number of companies that came under KDB's wing through debt-to-equity swaps soared from five in 2001 to 49 in 2014. The state bank allegedly poured nearly 4 trillion won into them during the period, but most of the companies slipped into insolvency again because of the bank's lax oversight. All this explains why KDB is no longer capable of overseeing Daewoo and other companies under its jurisdiction.
What is most pitiable is that the government remains lukewarm to calls for punishing former and incumbent KDB executives even after the BAI laid bare the state bank's responsibility for the Daewoo crisis fully. This betrays a promise last month by Financial Services Commission Chairman Yim Jong-yong that it would hold KDB officials responsible according to the findings of the BAI audit.
To prevent the kind of debacle that hit Daewoo, it's crucial to throw the book at all those concerned. The prosecution should do its utmost to get to the bottom of Daewoo's insolvency and bring those responsible to justice.
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