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. …