Number blindness

10 December 2020 By John Foley Follow @johnsfoley

A $200 mln fine for bean-counting tricks shows what happens when companies are driven by a desire to hit big numbers at any cost. Larry Culp has moved GE away from that obsession. But the dishonest accounting was made easier by GE’s sprawl. Culp has yet to grasp that nettle.

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General Electric was hit with a $200 million fine for misleading accounting practices in an order handed down by the U.S. Securities and Exchange Commission on Dec. 9.

The conglomerate failed to explain to investors how it had used inter-company transactions, accounting changes and tweaks to its estimates of future costs to bolster its financial statements, the regulator said.

GE did not disclose the extent to which increases in the profit of its power-equipment segment were unsustainably enhanced by its own forecasts of how much profit customer contracts would provide, the SEC said.

The company also sold some of its customers’ longer-dated unpaid bills to its own finance arm, GE Capital, without telling investors how significantly this had boosted the company’s industrial cash flows.

Thirdly, it changed its calculation of the shortfall in some old-age insurance policies and omitted details of worsening claims trends. The insurance business incurred a $9.5 billion write-down in 2017.

The SEC noted that GE has replaced managers in the affected businesses and changed its disclosures. As well as paying a fine, the company must submit two reports to the watchdog detailing its internal accounting and disclosure controls.

Context News

General Electric was hit with a $200 million fine for misleading accounting practices in an order handed down by the U.S. Securities and Exchange Commission on Dec. 9.

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