March 8, 2005
Accounting scandal hits Delphi
Detroit, Michigan – Delphi Corporation, the largest auto parts company in the U.S. with several manufacturing facilities in Canada, dismissed its chief financial officer Friday as part of an ongoing investigation into numerous accounting errors. The errors occurred every year since Delphi became its own entity after spinning off from General Motors in 1999.
The investigation found that the company overstated its profits and misrepresented how much cash it made. Delphi’s chief accounting officer has also left and a vice president has been demoted.
In 2001, Delphi overstated its pretax profits by more than 1,000 per cent, turning a US$6 million pretax profit into a US$67 million one. Over six years, Delphi misstated profits by about US$166 million and overstated cash earned by US$446.5 million.
The accounting probe is not complete and the company has identified more irregularities, including more than US$322 million in payments between it and General Motors. Delphi launched the probe last August after the Securities and Exchange Commission told Delphi it was the target of an investigation.
Delphi has more than 185,000 employees worldwide, including operations in Canada, making parts ranging from steering systems to satellite radios. Its operations are worth US$27 billion per year.
General Motors is Delphi’s largest customer, accounting for more than 50 per cent of its sales. A GM spokeswoman said there was no connection between the problems at Delphi and GM. “Their disclosures have to do with how they accounted for it,” said Toni Simonetti of GM. “It has nothing to do with us.”
Friday’s release from Delphi acknowledged far greater accounting irregularities than had been disclosed. Previously, the problem was thought to be limited to US$90 million in information-technology contracts between Delphi and Electronic Data Systems Corp. But Friday’s release disclosed improper accounting of rebates given to customers in 2001, and improper recording of sales of unwanted materials to a third party. This boosted Delphi’s pretax income by US$60 million in 1999 and US$116 million in 2000, but the sales were questionable because Delphi was obligated to buy the materials back. Accounting experts say these are the type of deals that Enron was accused of making.