Verifone says errors in the way it calculated inventory costs will result in a decrease of about $36.9 million in its operating income for the nine months ending 31 July 31 2007.

The figures are even worse than VeriFone predicted when it launched the probe in December, when the vendor said that pre-tax profit was probably around $29.7 million lower than reported because it had made errors in valuing inventory in-transit as well as in allocating manufacturing and distribution costs to inventory.

In September VeriFone said nine-month pre-tax profit fell to $37 million, from $69.9 million a year earlier, due of costs associated with its takeover of Lipman Electronic Engineering in 2006.

In today's statement Verifone says the probe found that it "did not maintain effective internal control over financial reporting".

The investigation confirmed that "incorrect manual journal and elimination entries were made with respect to certain inventory-related matters" and "existing policies with respect to manual journal entries were not followed".

"Insufficient review processes and controls were in place to identify and correct the erroneous manual journal and elimination entries in a timely manner," says the statement.

Following this Zwarenstein has tendered his resignation, which will be effective once the results have been restated and filed with the Securities and Exchange Commission (SEC). The firm says it will begin the search for a new CFO immediately.

The company is also taking the role of chairman away from CEO Douglas Bergeron. The role of non-executive director will be filled by Charles Rinehart, an independent director since May 2006. The vendor says the move to separate the roles is "in keeping with developing best practices in corporate governance".

Following the audit committee's report Verifone says it will implement better IT and enterprise resource planning systems to deal with the increased size and complexity of its businesses.

The firm says it has also fired its supply chain controller, among other steps.

"We are focused on addressing the errors we made to ensure they are not repeated, while remaining committed to driving the business forward in these admittedly challenging times," says Bergeron.

In a separate statement Verifone says it will provide financial stats for its first fiscal quarter ended 31 January 2008 "as soon as practicable". However the firm has disclosed that toward the end of the first quarter, took a number of actions "to respond to the extremely challenging net revenue environment". These included the reduction in the company's global headcount by six per cent and the consolidation of the its Turkish assembly operation into Israel and its outsourced Thailand assembly operation into existing contract manufacturing operations in China.

"Although we have faced a number of very difficult challenges over the past several months, we remain confident in the fundamentals of the company's business model and the inherent growth prospects of the industry; namely, providing technology infrastructure that facilitates the worldwide trend towards electronic payments as a substitute for cash," says Bergeron. "We are working hard to regain our investors' confidence in our ability to execute on this business model in the quarters ahead."

Verifone's shares slumped 89 cents, or 5.29%, to $15.94, in early morning trading.