CPI Aerostructures auditor cites weak financial controls

CPI Aerostructures Inc. of Edgewood reported Monday its net income fell to $700,000 for the fourth quarter of 2015, compared to $1 million a year earlier, and said it discovered an instance of weakness in its internal financial controls.

Company officials said the dip in net income was temporary and that its financial controls are robust.

The aerospace contractor, which makes parts for the A-10 Warthog attack jet, reported that revenue increased by 57 percent, year over year, to $31.6 million in the fourth quarter.

The company’s stock price closed at $6.93 per share, down 4.41 percent.

CPI Aero’s net income took a hit due to a delay in negotiations over its wing replacement program for the Warthog jet, president and chief executive Douglas McCrosson said in a news release. The negotiations, which another executive said later were with Chicago-based Boeing Co., were over the company’s request for “equitable relief,” or additional compensation.

However, McCrosson said, because the proposed 2017 defense budget released in February calls for a delay in the Warthog’s retirement, CPI Aero believes the wing program will ultimately prove to be a “net positive” for the company.

Earnings per diluted share were 8 cents for the quarter, compared to 20 cents a year earlier.

As negotiations over its work on the Warthog proceeded during the fourth quarter, CPI Aero initially believed it had enough documentation to book additional revenue, but it later discovered it did not have the documentation it needed, the company’s chief financial officer, Vincent Palazzolo, said in an interview.

CPI Aero brought the issue to the attention of its auditor, CohnReznick, and it has already taken steps to rectify the problem, Palazzolo said.

In a document filed Monday with the Securities and Exchange Commission,

the auditor wrote that CPI Aero “did not have adequate review controls” relating to its request for additional compensation.

“Other than this one transaction that we discovered, they’ve never had any issue with any of our internal controls,” Palazzolo said of CohnReznick, which he said has been CPI Aero’s auditor for 12 years.

Palazzolo said CPI Aero is negotiating with Boeing over its request for additional compensation. CPI Aero expects to conclude the negotiations in the second quarter, Palazzolo said.

For all of 2015, CPI Aero swung to a profit of $5 million from a loss of $25.2 million for 2014. Its annual revenue increased from $39.7 million in 2014 to $100.2 million.

By Maura McDermott

maura.mcdermott@newsday.commauramcdermott

Maura McDermott covers education. Since joining Newsday in 2012, she also has worked on the investigations team and covered real estate and the business of health care.