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PPG Announces Investigation Resolution

Tuesday, October 1, 2019

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Global coatings company PPG (Pittsburgh) announced last week that the U.S. Securities and Exchange Commission-led investigation regarding PPG’s financial reports from December 2016 through April 2018 has been resolved.

The settlement involves no financial penalty.

Financial Saga

In April 2018, PPG released its first-quarter financial report, indicating a 9% increase in net sales over the prior year, totaling $3.8 billion, but also noted that an audit was ongoing to investigate possibly faulty accounting that may have underreported expenses for the quarter.

As the report was being finalized, PPG received a notice that there had been potential violations of the company’s “accounting policies and procedures regarding the failure to accrue certain specified expenses in the first quarter.” After a preliminary review, PPG pinpointed $1.4 million of expenses that should have been accrued in the first quarter.

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Global coatings companny PPG (Pittsburgh) announced last week that the U.S. Securities and Exchange Commission-led investigation regarding PPG’s financial reports from December 2016 through April 2018 has been resolved.

“The report also alleges that there may have been other unspecified expenses, potentially up to $5 million in the aggregate, that were improperly not accrued in the first quarter,” PPG noted at the time. “The Audit Committee of the company’s Board of Directors is overseeing an investigation of the matters set forth in the report, with the assistance of outside counsel. The company is currently unable to predict the timing or outcome of the investigation and will move with diligence.”

The following month, PPG reported that the company had terminated its former vice president and controller, Mark C. Kelly, after its internal investigation revealed improper accounting practices not only in the company's 2018 first quarter but also stretching back to 2017.

Two other employees who reported to Kelly were also reassigned in the wake of the accounting problems, as some employees working under him made improper entries at his direction, the company says.

In the weeks after the announcement, PPG was approved for a six-month filing extension by the U.S. Securities and Exchange Commission for its first-quarter financial report.

By July, the company stated that it had concluded its internal investigation within its accounting department after uncovering evidence of improper practices by former controller Kelly. The announcement came along with amended financial reports for the fourth quarter of 2016, all of 2017 and the first quarter of 2018.

The month after the investigation was concluded, PPG appointed William E. Schaupp as the new Vice President and Corporate Controller.

Amended 2016-18 Numbers

Net income from continuing operations for both 2016 and 2017 decreased as a result of the amended filings, by $4 million and $2 million, respectively. Net income from discontinued operations increased by $5 million in 2017 due to the changes. Adjusted net income from continuing operations in the first quarter of 2018 was updated to $342 million, a decrease of $8 million in comparison with what had originally been reported.

At the time, the company said as a result of the investigation, which was conducted by auditor PricewaterhouseCoopers, it had already started to make changes to ensure similar issues won’t come up in the future.

“We have already begun to implement a remedial plan to address the issues identified by the internal report and the investigation, as more fully described in our filings today,” chairman and CEO Michael McGarry said in a statement.

“We are committed to take actions that are consistent with our ethics and values and fully meet the expectations of both internal and external stakeholders. Unwavering adherence to our core standards of financial integrity and honesty remains a top priority and focus for all PPG employees.”

What’s Happening Now

According to the SEC order, PPG was acknowledged in its ability to self-report, remain cooperative throughout the investigation and conduct prompt remedial actions.

“We are pleased to have resolved this matter with both the SEC and USAO without any financial or other penalty,” said McGarry. “As we move forward, our focus remains on our unwavering adherence to our core standards including financial integrity, which must and will remain a top priority and a focus for all PPG employees.

“Finally, I want to share my appreciation with all our stakeholders for your patience as we have worked our way through this investigation. We are committed to operating our business with the utmost integrity and transparency and in compliance with all applicable laws and regulations.”

Additionally, the U.S. Attorney’s Office for the Western District of Pennsylvania reports that it will not pursue any action against PPG. The company previously reported and disclosed the existence of the USAO investigation on Jan. 17.

   

Tagged categories: Asia Pacific; Business management; Business matters; Coatings manufacturers; Earnings reports; EMEA (Europe, Middle East and Africa); Ethics; Finance; Good Technical Practice; Latin America; North America; PaintSquare App - Commercial; PPG; Project Management; Z-Continents

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