The Audit Committee of the Board of Directors of The Chemours Co. issued an update on financial control issues that led to the CEO, CFO, and controller being placed on leave.
The review reported that members of senior management delayed payments to some vendors to aid incentive compensation
The review was launched after an anonymous call to the Chemours Ethics Hotline was found to not have been properly handled. On March 5, a “substantially complete” report of the internal review findings was delivered to the full board.
A release stated that the Audit Committee review determined that senior management members placed on administrative leave last week lacked transparency with the company’s board due to the payables and receivables timing actions and their effect on free cash flow targets.
As a result, the Audit Committee concluded that the senior management members placed on administrative leave last week violated the company’s code of ethics related to the ”promot[ion of] full, fair, accurate, timely and understandable disclosure.”
The internal review findings do not affect the preliminary, unaudited estimates of operating results and other financial measures as of and for the year ended December 31, 2023.
The Audit Committee’s determinations, conducted with the assistance of outside counsel, included, among other things, that members of senior management who were placed on leave engaged in efforts in the fourth quarter to delay payments to certain vendors that were originally due to be paid in the fourth quarter of 2023 until the first quarter of 2024 and to accelerate the collection of receivables into the fourth quarter of 2023 that were originally not due to be received until the first quarter of 2024.
The Audit Committee found that the individuals engaged in these efforts in part to meet free cash flow targets that the company had communicated publicly, which would also be part of a key metric for determining incentive compensation.
As previously disclosed, as of December 31, 2023, the company’s cash and cash equivalents and restricted cash and restricted cash equivalents totaled approximately $1.8 billion, of which $1.2 billion was unrestricted.
The Audit Committee and company management continue to assess the actions’ impact on cash flow measures.
The company is also working to complete its year-end reporting process, including its review of internal control over financial reporting as of December 31, 2023, and to file its annual report on Form 10-K with regulators as soon as possible.
As noted above, the Audit Committee review relates to an anonymous report made to the Chemours Ethics Hotline that was not elevated to the General Counsel or the Audit Committee until the matter was identified in connection with the company’s year-end 2023 external audit process.
“The Audit Committee determined that the failure resulted from inadequate controls and procedures regarding the evaluation and escalation of hotline reports and poor judgment by certain employees who handle the intake of such reports,” according to a release.
The release pointed to the effectiveness of the “tone at the top” set by certain senior management members and the information and communication components of the internal control framework, including controls over the Chemours Ethics Hotline program.
The company expects to report on material weaknesses as of December 31, 2023, and its related plans in its annual report.
Chemours, like most material and chemical companies, is facing challenges from customers “destocking” inventories and cutting orders as the supply chains improve with some markets remaining weak.
Chair Dawn Farrell said “The Chemours Board of Directors takes these issues very seriously and appreciates the diligent efforts by the Audit Committee, with support from its counsel and Company management, to review these matters. We are also grateful for the leadership and dedication of our interim CEO and CFO, their senior management team and all our employees at our business units for their work every day to serve our valued customers.”
Chemours is headquartered in Wilmington and has a research center in Newark.
