Accounting Error Won't Cost Top IEC Executives Their Jobs

Despite accounting error of NIS 1.4 billion, IEC executives keep their jobs.

The jobs of the Israel Electric Corporation's top executives will be spared, despite a huge accounting error on their watch that left the company short NIS 1.4 billion in cash and scrambling for government assistance, TheMarker has learned.

IEC's board of directors has decided to limit dismissals to the two that have already taken place in the utility's finance unit, and will absolve everyone remaining of personal responsibility for the embarrassing mistake, sources said. The board will officially attribute the problem to faulty internal communications.

The main reason for the erroneously overstated cash flow forecast was the omission of updated information on the company's fuel costs during the summer. Additional calculation errors were also involved, and the entire episode wasn't brought to the attention of management until it was too late.

The findings of an investigation conducted by consultants from Goren Capital and Ernst & Young were discussed at length on Sunday by the company's board of directors before their release to the stock exchange. The current version of the report doesn't attribute personal blame to any of the six senior company officials who were warned two weeks ago that they could suffer consequences. Two, however have already tendered their resignations: Harel Blinde, the company's chief financial officer, and Zechariah Kay, head of its finance division.

The error was reported at the end of September but was passed off as just a miscalculation of fuel expenses. This came a month after the Finance Ministry and the Knesset's Finance Committee had already approved the company's bid to raise money to buy more fuel, and provided NIS 2 billion in state guarantees.

Then three weeks ago it was revealed that the company, fearing it could face insolvency within the next month, put in an immediate request for a further NIS 1.4 billion in government assistance. Meanwhile, the board of directors appointed a team to investigate the blunder on its behalf, but likewise failed to report this to the stock exchange.

It was also disclosed that the mistake didn't arise only from an increase in fuel expenses, but also involved a systematic failure of the interface between the finance and production divisions and severe defects in the internal auditing system.