Below are a sampling of disclosures made in October that describe internal control "issues." These are not disclosures of deficiencies or weaknesses; rather, the companies simply have noted they have some problem related to their controls. Please be aware that the excerpts below are just that: excerpts. The complete SEC filings are available for those who would like to review the complete disclosures in greater detail. For related information on the list below, please refer to the related story from the Nov. 9 edition of Compliance Week.
Company
Date
Description
Frontier Financial Corp.—
Regional bank.
2003 Sales: $148m
Auditor:
Moss Adams
Oct. 28
CONTROL ISSUES IDENTIFIED; IMPROVEMENTS MADE —
Internal Controls over Financial Reporting. We are currently undergoing a comprehensive effort to ensure compliance with Section 404 of the Sarbanes-Oxley Act of 2002 for our fiscal year ending December 31, 2004. This effort includes internal control documentation and review under the direction of senior management. During the course of these activities, we have identified certain internal control issues which management believed would benefit from improvement. These control issues are, in large part, the result of our increased size and need for documentation. The review has not identified any material weakness in internal control as defined by the Public Company Accounting and Oversight Board. However, we have made improvements to our internal controls over financial reporting as a result of our review efforts and will continue to do so. These improvements include formalization of policies and procedures, improved segregation of duties, and additional monitoring controls.
Exelon Generation Co.—
NA
2003 Sales: $
NA
Auditor:
NA
Oct. 27
CONTROLS NEED IMPROVEMENT —
… Exelon has undertaken a comprehensive effort to assess its system of internal controls over financial reporting. Using internal resources and external consulting assistance, Exelon has reviewed its internal controls over financial reporting to assess their adequacy and, as necessary, to address identified issues or inadequacies. That review has shown that, while most controls function appropriately, some areas require additional work and improvement. Although Exelon has not yet completed its assessment of its overall system of internal control, Exelon’s management does not believe that any of the identified areas constitute a “material weakness.” Exelon expects that these areas will be appropriately addressed by year-end 2004 and anticipates that they will not affect management’s year-end assessment of the effectiveness of Exelon’s internal controls over financial reporting.
Sprint Corp—
Telecommunications services.
2003 Sales: $26.1b
Auditor:
KPMG
Oct. 21
CONTROLS ERROR DISCOVERED —
During a review of internal controls related to its capital assets, Sprint identified, in the 2004 third quarter, a calculation error that had resulted, since 1999, in the overstatement of interest capitalized during the construction of its Wireless capital assets, with a corresponding understatement of interest expense. The error subsequently resulted in an overstatement of depreciation expense after the associated capital assets were placed in service. While the effects of this calculation error are not material to any previously reported period, Sprint has corrected this calculation error by restating previously issued financial statements….
Markland Technologies—
Security products and services.
2004 Sales: $6.0m
Auditor:
Wolf & Company
Oct. 20
CONTROLS LACKING IN ACQUIRED COMPANY —
Prior to the acquisition of EOIR, the limited size of our internal financial and controls staff did not permit a significant amount of time or expense on monitoring and oversight of our general administrative and financial functions. In the course of management's ongoing evaluation of our controls and procedures, management has concluded that, due to the limited amount of resources available for general administrative and financial matters prior to the acquisition of EOIR, the Company: (i) had less than the desirable number of people performing a majority of the financial duties, (ii) lacked the desired internal financial and controls staff resources for a comprehensive internal audit function, and (iii) in some cases had not been able to promptly accumulate and process all of our data and reports on a timely basis. Management believes that at this time, in light of existing newly instituted staff and controls, which include additional administrative personnel acquired with EOIR, and the recent addition of an outside consultant, the risks associated with a lack of segregation of duties and limited staff have been largely mitigated. However, management will periodically reevaluate the situation, and as necessary, will put in place additional internal staff and controls to prevent a lack of discipline around policies and procedures in our administrative and financial matters.
OCG Technology—
Medical equipment & supplies.
2003 Sales: $0.2m
Auditor:
Arthur Yorkes & Company
Oct. 13
LACK OF SEGREGATION OF DUTIES DEEMED INSIGNIFICANT —
…Management is aware that there is a lack of segregation of duties due to the small number of employees dealing with general administrative and financial matters. However, management has determined that considering the employees involved and the control procedures in place, risks associated with such lack of segregation are insignificant and the potential benefits of adding employees to clearly segregate duties does not justify the expense associated with such increase.
Computer Horizons Corp.—
IT services.
2003 Sales: $245.2m
Auditor:
Grant Thornton
Oct. 8
ACCOUNTING ERROR DISCOVERED; RESTATEMENT TO FOLLOW —
Computer Horizons Corp. (Nasdaq: CHRZ), a strategic solutions and professional services company, announced today that based on an internal review of accounting processes and procedures, it has discovered an error pertaining to the incorrect adjustment of consulting costs relating to intercompany transactions between CHC and its Canadian subsidiary…
The Company intends to restate its results for each quarter affected, including results for the calendar year ended December 31, 2003…
Eric Edelstein, Chairman of the Audit Committee, commented, “The Company is taking steps to strengthen its internal control processes and procedures in order to prevent the reoccurrence of events resulting in the need to restate prior period financial statements.”
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