South Korea’s financial watchdog on Wednesday imposed penalties of up to 12 million won ($10,700) on local businesses that violated its internal controls over financial reporting rules in 2018.

Following an inspection, the Financial Supervisory Service found 28 cases of violations across 19 companies. It has decided to slap fines ranging from 3 million won to 12 million won on 13 of those cases – five businesses, one representative of a business and seven internal auditors.

The FSS cited a shortage of manpower in the area and lack of legal knowledge as key reasons behind violations.

Of the businesses, one was listed on the nation’s tech-heavy secondary bourse Kosdaq, while the rest were unlisted. Eleven of them, furthermore, were classified as marginal companies more widely known as “zombie firms” and were in the process of shutting down or rehabilitation.

The FSS exempted the marginal businesses and firms with under five employees from the penalties.

The majority of the businesses were issued disclaimer of opinion reports by external auditors, which essentially means they refrain from providing any opinion related to the business’ financial statements due to lack of satisfactory answers or documents.

The FSS legally subjects publicly listed businesses and unlisted firms that reported total assets over 100 billion won in the previous fiscal year under its monitoring for internal controls over financial reporting. The businesses can be fined up to 30 million won depending on the circumstances.

But the FSS official noted that the businesses have been adopting the Enforcement Decree of the Act on External Audit of Stock Companies, amended in 2017 and which took effect last year, to enhance business transparency and prevent tax evasion.

“The actual number of violations went down 37.8 percent from the 2016 to 2017 fiscal year for which the figure stood at 45,” an FSS official explained.

By Jung Min-kyung (mkjung@heraldcorp.com)