Chemours Internal Review Unveils Lack of Transparency and Cash Flow Manipulation The Chemours Company (NYSE: CC) has disclosed updates on its internal review conducted by the Audit Committee of the Board of Directors, assisted by independent outside counsel. This review was initiated following an anonymous report to the Chemours Ethics Hotline regarding certain matters.
The comprehensive findings of the internal review were presented to the full Board on March 5, 2024. Chair Dawn Farrell emphasized the Board’s commitment to addressing these issues earnestly and acknowledged the diligent efforts of the Audit Committee, supported by external counsel and company management.
The review revealed a lack of transparency with the Company’s Board of Directors by certain members of senior management, who were placed on administrative leave last week. This lack of transparency pertained to actions taken regarding payables and receivables timing, which impacted free cash flow targets at the end of relevant periods. Consequently, the Audit Committee concluded that these individuals violated the Company’s Code of Ethics applicable to key executive roles.
Despite these findings, the preliminary, unaudited estimates of operating results and financial measures for the year ended December 31, 2023, remain unaffected as per the Company’s previous disclosures.
Key determinations from the internal review indicate that senior management, during the fourth quarter of 2023, engaged in actions to delay payments to certain vendors until the first quarter of 2024, while accelerating the collection of receivables into the fourth quarter of 2023. These actions were aimed at meeting publicly communicated free cash flow targets and incentive compensation metrics for executive officers. Importantly, there was a lack of transparency with the Company’s Board of Directors regarding these actions.
Furthermore, similar actions, albeit to a lesser extent, were identified in the fourth quarter of 2022. These actions resulted in significant fluctuations in cash flow measures between quarters.
As of December 31, 2023, the Company held approximately $1.8 billion in cash and cash equivalents, of which $1.2 billion was unrestricted. The Company is actively assessing the impact of these working capital timing actions on cash flow measures and is diligently working on its year-end reporting process.
The Audit Committee review highlighted deficiencies in the evaluation and escalation of hotline reports, which were not appropriately handled until identified during the external audit process. This failure was attributed to inadequate controls and procedures.
Consequently, the Company is evaluating potential material weaknesses in its internal control over financial reporting as of December 31, 2023. This evaluation encompasses the control environment, including the effectiveness of senior management’s “tone at the top” and the Chemours Ethics Hotline program. The Company anticipates reporting on these material weaknesses and its remediation plans in its Annual Report on Form 10-K.
