Daily GPI / NGI All News Access

Accounting Scheme Shaves Millions from MCN's Results

Accounting Scheme Shaves Millions from MCN's Results

MCN Energy said yesterday it has had to chop millions from its 1997 and 1998 earnings reports and raise slightly its 1Q99 results because of deliberate financial miscalculations by several former employees at CoEnergy trading, its unregulated gas marketing subsidiary. MCN discovered the problem last month and fired three employees, including two subsidiary officers (see Daily GPI, May 18), for falsely showing good financial results from marketing.

"They didn't put any dollars directly in their pockets other than probably getting bigger bonuses for performance," said MCN spokesman Stewart Lawrence.

MCN said it is filing a revised 1999 first quarter Form 10-Q and 1998 Form 10-K with the Securities and Exchange Commission. The special investigation into the problem concluded that 1997 net income from continuing operations, previously reported as $112.2 million, or $1.51 per diluted share, must be restated downward to $103.1 million, or $1.39 per share; 1998 net income from continuing operations, before unusual charges, previously reported as $108.4 million, or $1.38 per share, must be restated downward to $100.9 million, or $1.28 per share; and 1999 first quarter net income from continuing operations, previously reported as $87.4 million, or $1.05 per diluted share, must be restated upward to $88.4 million, or $1.06 per share.

MCN-with the assistance of Deloitte & Touche LLP, its independent auditors-identified transactions in which the company's internal control systems were overridden and certain expenses were recorded in improper periods. The investigation identified two primary issues. First, as previously announced, CoEnergy had entered into gas supply contracts, agreeing to pay significantly less than market prices in one period in return for above-market prices to be paid in subsequent periods through March 2000. Additionally, the investigation found that CoEnergy had entered into certain unauthorized gas purchase and sale contracts for trading purposes, thereby violating MCN's risk-management policies. These trading contracts were not properly accounted for using the required mark-to-market method, under which unrealized gains and losses are recorded as an adjustment to cost of gas.

In the reporting periods from March 1997 through March 1999, $5.7 million of net income was realized and recorded in connection with these trading contracts. However, marking these contracts to market, as required, results in a previously unrecorded net loss of $8.4 million through March 1999, indicating a net loss of $2.7 million from such activities. All of the contracts have since been effectively closed out at minimal additional expense.

"We are pleased to have completed our review promptly, and that our investigation revealed that the problems, initially identified by our internal auditing staff, were limited in size and scope," said MCN Chairman Alfred R. Glancy III. "Nonetheless, the situation required disclosure and restatements of our 1997, 1998 and first-quarter 1999 results."

©Copyright 1999 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.

Comments powered by Disqus