GM to Reorganize 'Ineffective' Tax Dept.
GM issued a warning to investors that its performance was threatened by “ineffective” controls over financial reporting, including inadequately trained personnel and failure to obtain management’s approval for some transactions.
The disclosure was made in GM’s annual report filed with federal regulators after a six-week delay.
The announcement came a day after GM restated five years of financial results and reported that it lost $2 billion in 2006 — a significant improvement over the previous year’s $10.4 billion loss but a sizable negative number nonetheless.
In the annual report, GM, whose accounting practices are already under investigation by the Securities and Exchange Commission, said an internal evaluation found its financial reporting methods to be inadequate. “The lack of effective internal controls could adversely affect our financial condition and ability to carry out our strategic business plan,” the company said.
“This is clearly on the top of mind of many people here,” a GM spokeswoman, Renee Rashid-Merem, said. “It’s being addressed in a very prudent and swift way.”
The changes follow several restatements of previous years’ financial data. In some cases revised numbers were later modified again, raising concerns among investors and analysts about how much to trust the figures being reported.
“It has become such a pattern now,” an analyst with Fitch Ratings, Mark Oline, told the New York Times.
In December, the company hired a former AT&T executive, Nicholas S. Cyprus, to be its controller and chief accounting officer. About a year ago, GM vowed to tighten its accounting standards after restating six years of results and disclosing that the SEC was investigating the accounting for certain transactions related to pensions, suppliers and precious metals.
In late 2005, after GM said it had discovered accounting errors, the company’s chief financial officer, John Devine, said he would step down; he was succeeded by Frederick A. Henderson. Six weeks ago, when GM said it would delay reporting fourth-quarter results, Mr. Henderson told employees in a e-mail message, “Errors that require restatements are unacceptable and embarrassing for the corporation and for me personally,” according to The Detroit News.
GM’s accounting problems are yet another reminder how far the automaker has fallen from its peak years. GM gave investors audited financial statements in the 1930s, before they were mandatory, and for decades accountants held it up as the most prestigious of employers for their profession.
David Wright, an accounting professor at the University of Michigan, told the New York Times that GM was only one of many companies to disclose accounting problems in recent years since laws were enacted demanding more transparency in financial reporting. “And in some small defense of GM,” he said, “it is one of the largest and most complicated multinational organizations.”
Still, Professor Wright described GM’s accounting mistakes as “a serious issue.”