TRW’s Accounting Practices Headed for Sharp Criticism : Ex-Executive Will Testify Policies Led to Overcharges

A former high-level executive at TRW will testify before a congressional panel Thursday that the aerospace firm’s “poorly designed and overly complex” accounting policies were to blame for overcharges on government defense contracts.

Robert L. North, a senior corporate officer of TRW, was fired last December when the company discovered that a unit under North’s control had overcharged the Pentagon $2.5 million on military electronics contracts.

In a statement released Tuesday, North said through his attorney that he will testify that he and other fired TRW executives “were sacrificial lambs terminated by TRW to avoid government scrutiny.”

The testimony will be heard by the House Energy and Commerce Committee’s subcommittee on investigations and oversight, which has called two days of hearings to look into a series of overcharging cases involving various units of TRW.

Overcharging cases occurred at TRW units in Cleveland, San Diego, Sunnyvale and Colorado Springs, Colo., resulting in current criminal grand jury investigations. TRW said it investigated and disclosed the incidents voluntarily and made restitution to the government.

Robert Lundy, TRW’s vice president for public relations, reacted sharply Tuesday when asked to comment on the statement by North, saying: “We are not surprised that someone we discharged for his wrongdoing, namely Bob North, now alleges that he was a sacrificial lamb. This ‘sacrificial lamb’ is his language. It is ridiculous. It is not only self-serving, but absolutely false. He violated company policy and government regulations.”

Nonetheless, TRW is likely to encounter some heavy criticism in the hearings, not only by North but also by a variety of former TRW accounting managers and executives. Subcommittee Chairman John D. Dingell (D-Mich.) is expected to introduce evidence that TRW inflated the prices of some of its products two- to three-fold by falsifying records.

“It is unbelievable that this contractor first admitted to fraud against the government 33 months ago and now has admitted to fraud in virtually every corner of the corporation, but the Pentagon has taken no action to suspend or debar the corporation from further government contracts,” Dingell plans to tell the committee during his opening remarks at the hearings today, according to a text cited by his staff.

TRW is fighting any consideration by the government of a possible suspension of the company as a defense contractor. The Defense Logistics Agency’s contracting integrity division, which has the authority to suspend a contractor, confirmed last month that it is examining TRW’s conduct.

“There were isolated incidents and a handful of people who committed misdeeds,” Lundy said. “We uncovered these, investigated them voluntarily, disclosed them (to the Department of Defense) and took strong corrective actions. It’s ironic that there is an attempt to turn against us our program of self-investigation and voluntary disclosure.”

TRW Chairman Ruben F. Mettler will testify Thursday in response to allegations that TRW has weak internal accounting controls that contributed to the overcharging incidents. Mettler has met with every member of the subcommittee in recent days.

But today several former TRW accounting officials are expected to testify that self-investigation did not work properly at TRW.

North, a 20-year TRW veteran, was vice president and general manager of the firm’s electronic systems group in Redondo Beach, a 5,700-employee operation with annual sales of $800 million.

He was fired, along with Hugo Poza, after TRW concluded that its military electronics and avionics division in San Diego had overcharged the Pentagon $2.5 million. Poza, who also will testify Thursday, was head of the San Diego-based division and reported to North.