Accounting & Tax

Delphi CFO Resigns Amid Accounting Woes

Improper accounting for payments from suppliers, and for off-balance-sheet financing of indirect materials and inventory, resulted in the overstate...
Stephen TaubMarch 7, 2005

Delphi Corp., the world’s largest auto-parts maker, announced that Vice Chairman and Chief Financial Officer Alan S. Dawes has resigned. The Troy, Michigan-based company added that it would restate its results after finding accounting errors dating back to 1999, the year Delphi was spun off from General Motors.

“Dawes agreed to resign after the audit committee expressed a loss of confidence in him,” said Robert H. Brust, executive vice president and CFO of Eastman Kodak Co. and the outside director who chairs Delphi’s audit committee.

Delphi stated that certain prior transactions involving the receipt of rebates, credits, and other lump-sum payments from suppliers, as well as off-balance-sheet financing of certain indirect materials and inventory, were accounted for improperly; as a result, the company overstated cash flow from operations in 2000 by about $200 million. In addition, improper accounting for rebate transactions resulted in the company overstating pre-tax income in 2001 by about $61 million.

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The company stressed the internal investigation is not complete. “Additional transactions are under examination, and it is possible that the review will determine that they were not properly recorded and that previously issued financial statements for other periods may require additional corrections,” it added.

Delphi named chief accounting officer and controller John D. Sheehan as acting CFO, effective immediately. Sheehan, who joined the company in 2002 after 20 years with KPMG, will also retain his current responsibilities. Hewill report to chairman and chief executive officer J. T. Battenberg III, who announced on February 23 that he would retire later this year.

The company also announced that chief accountant and controller Paul Free has left the company and that John Blahnik, vice president of treasury, mergers and acquisitions, and new markets, has been reassigned to a non-officer position.

Spokeswoman Claudia Baucus told Bloomberg that the personnel moves are related to an internal audit of a transaction between Delphi and Electronic Data Systems Corp.