Delphi Accounting Errors Lead to CFO's Departure
The U.S. auto industry, previously untouched by scandals that have rocked other sectors, was brought into the fray on Friday when Delphi Corp., the nation's largest auto-parts company, disclosed accounting errors that led to the resignation of its chief financial officer.
The Detroit Free Press reported that an investigation showed accounting errors have occurred in every year since Delphi spun off from General Motors Corp. in 1999. Delphi, which has more than 185,000 employees worldwide, is a $27-billion-a-year maker of parts ranging from steering systems to XM satellite radios, the Free Press reported.
The investigation showed that the company overstated its profits and misrepresented the amount of cash generated by operations, the Free Press reported. While the accounting error was relatively minor for a company of Delphi's size, it caused profits to be overstated by 1,000 percent in 2001, which inflated a $6 million profit into a $67 million profit, the company said.
In all, profits were misstated by nearly $166 million and earned cash was overstated by $446.5 million, for a combined total of $612.5 million over a six-year period, the Free Press reported.
Delphi Vice Chairman and Chief Financial Officer Alan Dawes resigned after the board of directors "expressed a loss of confidence in him," Delphi said. Dawes, a 50-year-old Harvard graduate, had been with GM in various management positions from 1981 until Delphi's spin-off. He was the company's first and only chief financial officer.
Dawes had been a likely candidate to replace Chief Executive Officer J.T. Battenberg III, who had planned to leave at the end of the year. The company and Battenberg, 61, insist his departure is unrelated to the company's accounting woes.
Delphi said its former chief accountant and controller, Paul Free, also left. John Blahnik, who had been vice president of treasury, mergers and acquisitions and new markets, had been moved to a non-officer position.
"Each of these individuals had supervisory authority for others involved in or were directly involved in certain of the principal transactions under investigation," said Delphi in an SEC filing disclosing some of what was uncovered.