GM and GE – Both Have Poor Internal Controls

“News” broke yesterday that GM reported, “ineffective internal controls over financial reporting might make it difficult for the company to execute on its business plan.” They are also still under investigation by the SEC on several matters, including financial reporting related to pension accounting, transactions with suppliers including GM’s former subsidiary Delphi Corp., and transactions in precious metals.

I have to reluctantly agree with this analyst, even though I don’t completely understand the superficial view that “investors/traders” have taken. Don’t they see the examples of companies that “quickly and suddenly decline” when “suddenly” the lack of internal controls, lack of scrutiny by auditors and lack of transparency in financial reporting about risks finally come to light?

Kevin Tympana, auto analyst with Argus Research, said he doesn’t anticipate the stock taking a hit due to the comment in the filing. “These are not the issues this stock trades on. It trades on how it’s doing with the turnaround plan,” said Tympana. “At this point if you’re not aware of accounting issues, you haven’t been paying attention. There’s the SEC accounting probes going on and the long delay in this filing. It shouldn’t be a surprise to anyone keeping half an eye on the company.”

But I also don’t understand why GM has to fall on their sword over and over again and take all of this heat and bad press when GE has had the same adverse opinion on their internal controls by their external auditors and their own management over and over again and multiple restatements and no one bats an eyelash (or reports on it)?

Is it because of the glow of Jack Welch, that paragon of virtue, integrity and management by execution? Is it because of the fine management examples of his proteges when they went to other companies? Or is it because GE still reports a profit? Beware, as we have seen, when companies can’t get the numbers right or when they don’t clearly understand the risks of their business (or disclose them fully to their shareholders) and where they pay the executives who manage the company (and their friends who manage other companies) more than the GDP of an emerging market country, the “numbers” may only be as solid as the surface of the river outside my window. The surface cracks when a little warm sunlight starts to illuminate the murky depths.

Note: Deloitte is GM’s external auditor. KPMG is the co-source partner for GM in its internal audit function, providing up to 25% of the staff for this function.

KPMG is GE’s external auditor.

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  1. […] thus giving way for improved business strategies. Organizations with poor internal controls often stay behind of other brands which pay attention to both its customers as well as its employees. To end with […]

  2. […] thus giving way for improved business strategies. Organizations with poor internal controls often stay behind of other brands which pay attention to both its customers as well as its employees. To end […]

  3. […] no Maserati! Those who have been reading this blog know that size and “profits” are not always what they seem, even for a company with GE’s reputation in the marketplace. I have reported more than once […]

  4. […] may remember, is one of the Tier 1 automotive suppliers to GM and a close relation of GM, another company with ongoing issues related to poor internal controls. It seems the apples don’t fall far from the trees and poor business practices, bad management […]

  5. […] else can IPO with several years of adverse opinions on their internal controls over financial reporting and no audited financial […]

  6. […] This post was mentioned on Twitter by Francine McKenna, Contrahour. Contrahour said: $GE and $GM both have poor internal controls @retheauditors […]

  7. […] allows larger companies to have perpetual material weaknesses in internal controls, companies like GM and GE, and yet to continue to receive unqualified opinions on their financial statements.  The […]

  8. […] Many companies, even the largest and most highly regarded, were poorly run – policies, procedures and controls over external financial reporting were […]

  9. […] with some new details of my otherwise well-known history and mentions of Lehman Brothers, GE, GM, New Century, Satyam, Refco and Huron Consulting.  I also drop names like Michelle Leder and […]

  10. […] concern” opinion from its auditors, Deloitte. It’s been a long time coming. GM has been a problem child for a while. (Deloitte was also auditors for bankrupt Delphi, GM’s red-headed […]

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