Eden Prairie, MN 4/10/17; Washington, DC 4/10/17—Announcing its delayed 2016 financial results and its first quarter results (see IBO 4/15/17, MTS Systems disclosed that it has completed the internal investigation of the possible violation of the company’s Code of Conduct by employees in China (see IBO 11/30/16). “The investigation, overseen by the Audit Committee of our Board of Directors, and conducted using external legal counsel and forensic experts, confirmed that certain employees involved with our China Test business violated our Code of Conduct by starting a company that competes with MTS in the low end of the materials test market within China. Importantly, the investigation did not find any evidence of intellectual property theft,” said MTS Systems President and CEO Dr. Jeffrey A. Graves. He stated that as a result of the investigation the company will make changes to its  processes and controls related to Code of Conduct and compliance policies and procedures, adding “with particular focus on those related to third-party sales of our products and local sourcing activities.” Among the actions being taken to address the deficiencies is the creation of a Chief Risk and Compliance Officer position. According to an SEC filing, the former China Test leader and other senior management were identified as having violated the conflict of interest provisions of the Code of Conduct.

In its annual SEC filing, MTS Systems wrote, “[W]e have identified opportunities to enhance our processes and controls to further address the challenges presented by the China operating environment.” In addition, the filing stated, “To address the challenges presented by the findings of the investigation of our China operations, we are exploring multiple business alternatives to address the low-end materials market.” In 2016, the company made changes to its processes and controls in response to a finding of material weaknesses in its internal control over financial reporting in 2015 (see IBO 4/15/16).