Accounting & Tax

OM Group Blames Past Employees for Accounting Problems

An audit committee investigation unearthed the need to restate a half-decade of results.
Stephen TaubAugust 4, 2004

Citing accounting irregularities caused by former employees, OM Group, a chemical manufacturer, will restate its financials for the past five years. The company’s investigation concluded “that there was no wrongdoing by current employees.”

Earlier this year, the company announced it would delay filing its 2003 annual report and 2004 first quarter report until the completion of an anticipated restatement of its financials for 1999 through 2003 and resolution of SEC comments on previous company filings.

The restatement stems from an independent investigation by Om Group’s audit committee that was by outside lawyers and forensic accountants, according to the company.

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The internal probe involved an “extensive examination” of the company’s systems and procedures for reporting and consolidating inventory and other items in the consolidated financial statements. The audit committee probe also reviewed accounting records, related documentation, and E-mail, and interviewed many current and former employees.

The audit committee found, among other things, that some adjustments to inventory and other accounts were improperly recorded for a number of years, according to the company. Those errors resulted in overstatements of net earnings for 1999, 2000, and 2001. Most of these adjustments represent amounts written off in 2002 and 2003, causing understatements of net earnings for those two years, OM Group stated.

The company stated its belief that earnings before income taxes for 1999 through 2001 will be cut by about $115 million to $120 million, and that aggregate earnings before income taxes for 2002 through 2003 will be increased by about $116 million to $121 million. Those results, however, are as yet unaudited, Om Group acknowledged.