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GM's general auditor looks back.

Eugene H. Flegm, CPA, is general auditor of General Motors. After 28 years at GM, including more than a decade as assistant comptroller overseeing financial accounting, he plans to retire this year. Below, he reflects on the changes he's seen.

Journal: What is the major change you've witnessed during your career in the auto industry?

Flegm: Technology, of course. Financial accounting was done manually when I came here. Over the years, we moved first to batch processing on mainframes and now we're using personal computers (PCs) and wide area networks.

As GM's general auditor, I oversee some 200 auditors .worldwide who carry laptop computers and Can access corporate databases. We have a data-retrieval system allowing payments for the entire corporation to be checked by key dates.

On the other hand, technology has exacerbated internal control issues. With the access PCs provide, management has to be more conscious of potential problems and work harder at maintaining control.

Journal: Have accounting procedures changed?

Flegm: Interestingly enough, everything changes and nothing changes. Technology hasn't changed the basic theory of double-entry accounting. We still have to keep track of vehicles produced and sold, manage cash and control costs. Perhaps the most significant change in procedures is the advent of activity-based costing (ABC). We now track product cost by measuring the cost drivers rather than by allocating volume-based relationships such as direct labor hours. GM has fully implemented ABC as a statistical analysis system for product costing.

Another innovation is the movement to "common systems" for scheduling, payables, receivables, purchasing and so on, allowing divisions access to shared data. We were very divisionalized 28 years ago. Much of the accounting functions have been consolidated.

For example, at one time we had a different general ledger system for each division, and the systems ran in isolation without "talking" to each other. Each system generated balance sheets and income statements that were sent to corporate headquarters, where we put them together on large sheets and added up the figures.

We went to a central general ledger system starting about 10 years ago, finally extending it throughout all sites in the United States and Canada about 3 years ago. There's only one general ledger system now, and all our plants have access to it through a remote journal entry system. We've also "commonized" our central purchasing and receivables systems through the entire corporation. At one time Chevrolet had its own billing system, Pontiac had another one and Buick still another. Now we have just one that's common to all the divisions. Everybody uses the same one and the terminals at each division can all talk to one another.

This has allowed us to build and access a broad database. When we're auditing, for example, we can audit all the vendors. Twenty-eight years ago we had to ask each of the 40 divisions, Did you sell to XYZ company? Now we can go into the computer and say, List all the purchases made from XYZ company.

Journal: How have your human resources changed?

Flegm: Technology has affected the size of our financial staff dramatically. It's permitted enormous reductions as we eliminate redundant operations and replace manual, clerical functions with the computer.

Also, the demographics in corporate accounting have changed. My staff in the financial accounting group 28 years ago included only one female who was a college graduate. I recruited female professionals aggressively through the 1970s and 1980s. Now the accounting and audit staffs are 50% male and 50% female.

Finally, the entire philosophy of managing people has changed. The classic management style 28 years ago was to have dictatorial managers. Today we use a teamwork approach, more "bottom up" than "top down."

Journal: What accounting issues have been most important?

Flegm: Postemployment benefits other than pensions (OPEB). All the auto companies have stepped up and recorded OPEB liabilities. In all honesty, auto companies have been struggling to manage cash flow for those costs for a long time. The cost of health care in particular, both for retirees and active employees, is a difficult benefit to manage because you're controlling people's choices of doctor and choices of service. The auto industry has been dealing with problems that the national government now is facing.

Accounting standards certainly are becoming more and more burdensome in terms of recordkeeping and financial reporting. I'm hearing rumblings that the issue of summary annual reports is coming up again because of the extensive detailed footnotes required for market values, along with all types of subjective analyses. Very few people are interested in reading these or find they add value to the reports.

Journal: Any other significant developments that stand out?

Flegm: There was the effect of W. Edward Deming on American industry and particularly the auto industry, with his emphasis on controlling quality at every step of the manufacturing process while treating people as part of a team and stressing cooperation, not competition, between departments. His innovations, first implemented by Japanese industry after he was ignored in this country, now are widely accepted: total quality management (TQM), just-in-time inventory (JIT), worker empowerment and so forth.

Journal: Has GM implemented a TQM program?

Flegm: Yes. We call it our continuous improvement program. It includes JIT, which has had a dramatic effect on managing inventories and suppliers.

Journal: Any thoughts on the future of the auto industry?

Flegm: I'm very optimistic that American industry is entering a period of great resurgence. I think last year was the turnaround, and all three big auto companies will show profits for 1993--modest maybe, but a lot better than the red numbers we've shown for several years. It's been brutal for the last four years, but we've recognized and worked through our problems and we're all on our way. The auto industry is reasserting its preeminence in America and on the world scene.
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Title Annotation:On the Road Again: CPAs in Their Cars; General Motors general auditor Eugene H. Flegm
Author:Miller, Stephen H.
Publication:Journal of Accountancy
Article Type:Interview
Date:Mar 1, 1994
Previous Article:How CPAs use their automobiles.
Next Article:Gadgets and gizmos.

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