General Motors has agreed to pay a $1 million civil penalty to settle charges that deficient internal accounting controls prevented the company from properly assessing the potential impact on its financial statements of a defective ignition switch found in some vehicles, the Securities and Exchange Commission announced.
Without admitting or denying the charges, General Motors consented to the SEC order finding that the company violated Section 13(b)(2)(B) of the Securities Exchange Act by not devising and maintaining a sufficient system of internal accounting controls.
According to the SEC order, when loss contingencies such as a potential vehicle recall arise, accounting guidance requires companies like General Motors to assess the likelihood of whether the potential recall will occur, and provide an estimate of the associated loss or range of loss or otherwise provide a statement that such an estimate cannot be made.
The SEC order finds that the company’s internal investigation involving the defective ignition switch wasn’t brought to the attention of its accountants until November 2013 even though other General Motors personnel understood in the spring of 2012 that there was a safety issue at hand. Therefore, during at least an 18-month period, accountants at General Motors did not properly evaluate the likelihood of a recall occurring or the potential losses resulting from a recall of cars with the defective ignition switch.
“Internal accounting controls at General Motors failed to consider relevant accounting guidance when it came to considering disclosure of potential vehicle recalls,” Andrew Calamari, Director of the SEC’s New York Regional Office, said in a statement. “Proper consideration of loss contingencies and assessment of the need for disclosure are vital to the preparation of financial statements that conform with Generally Accepted Accounting Principles.”
“The SEC settlement does not call into question any of GM’s current or prior financial statements or its disclosures,” GM said in a statement. “Also, no material weakness or significant deficiency was found by the SEC.”
GM added that, since the ignition switch recall, the company has been proactively and successfully resolving ignition switch issues with customers and regulators at both the state and federal level. In the months immediately following the ignition switch recall, GM reorganized its vehicle engineering teams for greater transparency, urgency and accountability. This included creating a new global vehicle safety organization that is focused on executing zero-defect safety systems for vehicles and customers.
The safety organization includes an industry-leading emerging issues and data analysis team and a re-engineered field investigation process. The company also created a “Speak Up For Safety” program that provides all employees and suppliers an opportunity to report or suggest any potential safety related items.