Delphi Corporation: Financial Fraud - Essay Example

Delphi Corporation: Financial Fraud Delphi Corporation is among the leading suppliers of latest technologies for commercial and automotive vehicle markets. The company has its headquarters in the United Kingdom. Controversial issues relating to financial fraud have rocked the company. In 2006, the Securities Exchange Commission accused Delphi Corporation of engaging in a number of financial fraud between the years 2000 and 2004. The commission has charged the corporation and nine officials who were part of the plan to commit a fraud.

According to the commission, Delphi organized a disclosure scheme that allowed the organization to hide $237 million warranty claim from its previous parent company. The corporation inflated its income by close to $202 million. Towards the end of 2000, the company sold inventories amounting to $270 million and repurchased them in the following quarter at a rate that matched the original sales price. The repurchases allowed the corporation to increase its earnings by $200 million. They invented $270 million via inventory reductions and they lied about a net income of $80 million.

In addition, the fourth quarter of 2001 saw the company solicit a lump sum payment of $20 million from an IT company. Delphi was supposed to give the company business. It was agreed the company would repay the $20 million within five years, which made it a liability to the corporation (Lundegaard, 2005). However, the company did not report the $20 million as a liability but a non-refundable rebate. Between 2003 and 2004, the company hid $325 million to increase its non-GAAP measures of the corporation’s financial status (U.S. Securities and Exchange Commission, 2006).

Analysts, investors and other rating agencies relied upon this information. The move to hide this amount of income gave the organization a chance to overstate its street net liquidity, between 2003 and 2004, which is a measure in pro forma. In addition, the corporation created $30 million boost in its “Street operating cash”, which was false.Background of Perpetrators J. T. Battenberg III has been fined $215,000 for participating in the fraud. Battenberg was the CEO of Delphi between 1998 and 2005.

He worked for General Motors and took over the management of Delphi because of General Motors spin-off. Alan Dawes is the former Chief Financial Officer, who has been alleged to participate in a fraud scheme. Alan was also the Vice Chairman and protégé of Battenberg. Alan Dawes is from Palm Beach Gardens. Paul Free is the former Controller and Chief Accounting Officer at Delphi Corporation. Paul is from Michigan. He was also in charge of some product lines in the company. John Blahnik hails from Bloomfield Hills.

He was theTreasurer and Vice president in Delphi Corporation. Milan Blans is the former Director of Capital Planning and Pension Analysis in Delphi Corporation. Milan comes from Farmington Hills. Catherine Rozanski is the former Director of Financial Accounting and Reporting at Delphi Corporation. Judith Kudia was the Director of Finance in the IT department of Delphi. Scot McDonald, an employee of an IT firm based in Texas, was once an in charge of U.S. GAAP Consulting and Reporting in Delphi Corporation. B.N Bahadur was the manager and sole owner of a management consulting company found in Michigan.

ReferencesLundegaard, K. (2005, March 7). Delphi Discloses Accounting Problems. Retrieved from The Wall Street Journal: http://online.wsj.com/articles/SB110994509329670632U.S. Securities and Exchange Commission. (2006, October 30). SEC Charges Delphi Corporation and Nine Individuals, Including Former CEO, CFO, Treasurer and Controller, in Wide-Ranging Financial Fraud; Four Others Charged With Aiding and Abetting Related Violations. Retrieved from U.S. Securities and Exchange Commission: http://www.sec.gov/news/press/2006/2006-183.htm