General Motors (GM) announced last week that it will combine the positions of Corporate Controller and Chief Accounting Officer as part of a restructuring of the Corporate Controller’s office. The company’s current controller, Paul W. Schmidt, will retire later in the year. Peter Bible, chief accounting officer, will resign effective June 1st but will assist the company during the transition to the new structure.
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GM also announced that it had hired AlixPartners of Southfield, Michigan, to assist the corporation with a broad range of accounting, financial reporting and related matters. The financial advisory firm’s tasks will include “assisting with assessments of the corporation’s internal, financial reporting and disclosure controls and implementing steps to improve them on an ongoing basis,” GM’s 8-K said.
GM’s management has been under pressure from the company’s directors to restore the company’s image to investors in the wake of a series of accounting problems. The company announced in March that its results from 2002 through the third quarter of 2005 could not be relied upon and that it would restate its earnings for the period, reducing net income by $387 million, Bloomberg.com reports
“The media had a field day with the accounting restatements although they only amount to 2 percent of five years worth of earnings,” said Burnham Securities Analyst, David Burnham, according to Bloomberg.com.
GM has also received two federal grand jury subpoenas and six subpoenas from the Securities and Exchange Commission (SEC). One of the grand jury subpoenas relates to GM’s handling of supplier credits from Delphi Corp., a parts supplier spun off by GM in 1999. Supplier credits or rebates, are payments made by a supplier to GM in exchange for future business or in anticipation of price decreases, Bloomberg says.
GM said it concluded it had mistakenly recorded some of these payments prematurely, the Wall Street Journal reported. The issue of how to book rebates has troubled other companies, including Royal Ahold AV and Kmart Corp., the Journal says. GM now forbids the practice of supplier credits.
When it announced the restatement, GM also said it was looking into accounting for cash flows related to mortgage loans at one of its subsidiaries and accounting for the value of cars leased to rental companies.
Two of the SEC subpoenas also relate to GM’s dealings with Delphi Corp. which is restructuring under bankruptcy protection. Delphi wants to void its UAW contracts and retiree healthcare benefits because it has insufficient money to pay them. A judge in federal bankruptcy court in New York will rule on the matter later this month, the LA Times says.
Neither GM nor any employee has been accused of wrongdoing in any of the subpoenas, the Journal reports. The fact that Bible will remain as a consultant to GM and that Schmidt “will stay with GM until a successor is named suggests a lower probability of a new, imminent legal or accounting issue,” said Jonathan Steinmetz, a Morgan Stanley analyst, according to Bloomberg.
AlixPartners has been involved in several prominent bankruptcy cases, including Refco Inc., Enron Corp. and WorldCom, Inc., Bloomberg says. GM’s external auditor is Deloitte & Touche.