[THE INVESTOR] Prosecutors said on Aug. 2 that they have launched an investigation into allegations of accounting fraud at Korea Aerospace Industries, with its top executives already under probe for cost manipulation and slush funds.

The Seoul Central District Prosecutors’ Office began its probe last month over allegations that some of its top officials manipulated expenses for development projects, including the making of a utility helicopter Surion to gain illicit profits.

Now the prosecutors suspect that KAI also overstated the value of proceeds from the sale of a light attack aircraft, FA-50, to Iraq, a deal worth some 3 trillion won (US$2.67 billion), according to prosecutors.

The defense company clinched a deal to supply 24 of the aircraft to the Middle East nation in 2013. The prosecution believes that KAI cooked the books as if it had collected the payment from the Iraqi buyers, when the money was in fact not received due to the geographical tension in the Gulf at that time.

The prosecution suspects that it was an organized scheme, led by top officials including former KAI chief executive Ha Seong-yong, who just quit his job two weeks ago amid mounting suspicions.

They said the probe will center on the alleged accounting fraud from now on, with the country‘s financial watchdog also joining in by conducting its own audit on KAI’s accounting.

By Alex Lee and newswires (alexlee@heraldcorp.com)