Below is "Part II" of the list of companies disclosing material weaknesses or deficiencies in internal controls in November. The list below is from Nov. 15 through Nov. 30. For "Part I, including the disclosures from Nov. 1 through Nov. 14, please refer to the box at right. Also, 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, as well as inclusion and exclusion criteria, please refer to the related story from the Dec. 7 edition of Compliance Week.
Company
Date
Description
FormFactor—
Semiconductor equipment.
2003 Sales: $98.3m
Auditor:
PwC
Nov. 30
MATERIAL WEAKNESS IDENTIFIED —
...Given the nature of the two restatements, FormFactor believes that the material weakness relates to insufficient personnel resources and technical accounting expertise within its accounting function. FormFactor believes that it has already taken substantial steps toward remediation of this material weakness and is taking additional steps to cure the weakness. Prior to discovering the error giving rise to the second restatement, FormFactor had hired an internal audit director, a new tax director and an additional accounting manager…
Durban Roodepoort Deep—
Precious metals mining.
2004 Sales: $349.4m
Auditor:
KPMG
Nov. 29
MATERIAL WEAKNESSES IDENTIFIED —
…In connection with the above matters, we identified material weaknesses in our internal control over financial reporting that we reported to our Audit Committee and to our auditors. These material weaknesses comprised:
a lack of sufficient knowledge and experience among our internal accounting personnel regarding the application of US GAAP and SEC requirements;
insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and
insufficient emphasis by management on evaluating our compliance with US GAAP requirements.
Franklin Covey—
Office products retail.
2003 Sales: $307.2m
Auditor:
KPMG
Nov. 29
DEFICIENCY IDENTIFIED —
…This deficiency in our internal controls related to improper recognition of revenue from certain multiple element contracts and included ineffective controls to monitor compliance with existing policies and procedures and insufficient training of accounting personnel on complex accounting standards related to multiple element contracts in a division of our OSBU. The improper revenue recognition was detected in the review process and was not included in our financial statements filed with the SEC or otherwise publicly disclosed. We are in the process of improving our internal controls over financial reporting regarding these contracts in an effort to remediate this deficiency through improved supervision of accounting staff and additional training on complex accounting matters for our accounting staff…
ArthroCare Corp.—
Medical equipment & supplies.
2003 Sales: $118.9m
Auditor:
PwC
Nov. 26
MATERIAL WEAKNESS IDENTIFIED —
…Our independent auditors have provided management and our Audit Committee a letter related to this error, indicating the following internal control design deficiencies which constitute a material weakness:
Inadequate monitoring of foreign subsidiaries
Failure to analyze financial results
Failure to timely address significant audit findings
In light of these matters, the Company’s Chief Executive Officer and Chief Financial Officer now believe that the Company’s disclosure control procedures were not effective as of the end of the fiscal quarter covered by this report, since a material weakness in the control structure of the Company existed during the quarter…
Vesta Insurance Group—
Property & casualty insurance.
2003 Sales: $617.7m
Auditor:
PwC
Nov. 24
MATERIAL WEAKNESS, OTHER WEAKNESSES IDENTIFIED —
During the third quarter of 2004, the Company commenced testing of its internal controls. The Company's documentation and testing to date have identified internal control weaknesses in the documentation, design and effectiveness of internal controls over financial reporting that the Company is in the process of remediating. The Company has also identified a material weakness in the effectiveness in internal controls over financial reporting as it relates to the Company's consolidation process. The Company is also in the process of remediating this weakness.
PAV Republic—
Steel production.
2003 Sales: $723.7m
Auditor:
KPMG
Nov. 24
MATERIAL WEAKNESSES IDENTIFIED —
During their SAS 100 review of our interim consolidated financial statements for the nine months ended September 30, 2004, our Independent Registered Public Accounting Firm identified certain significant deficiencies that constituted material weaknesses in our internal controls over our financial reporting, including material weaknesses related to the accrual of contingent liabilities and in the monitoring and oversight of third party specialists engaged by us….
Tweeter Home Entertainment Group—
Consumer electronics.
2003 Sales: $787m
Auditor:
Deloitte & Touche
Nov. 24
MATERIAL WEAKNESS IDENTIFIED —
In connection with its audit procedures for the year ended September 30, 2004, Deloitte & Touche LLP (“Deloitte & Touche”), our independent auditors, advised our Audit Committee and management that controls relating to the accumulation of financial information within spreadsheets were not sufficient, resulting in a material weakness under standards established by the American Institute of Certified Public Accountants. The Company recorded adjustments for the items identified….
Huntsman Corp.—
Chemical manufacturer.
2003 Sales: $7b
Auditor:
Deloitte & Touche
Nov. 24
MATERIAL WEAKNESSES IDENTIFIED —
In connection with the audit of our financial statements for the year ended December 31, 2003, our independent auditors identified several matters that they deemed to be "material weaknesses" in our internal controls as defined in standards established by the American Institute of Certified Public Accountants. The auditors noted that these material weaknesses had led to restatements of the financial statements of certain of our subsidiaries in recent periods.
The principal material weakness identified by our auditors was that our controllership function did not have an adequate formal process in place to gather the data required to prepare the financial statements and disclosures required for the numerous financial reporting requirements of our subsidiaries…
Material Sciences Corp.—
Metal fabrication.
2003 Sales: $243.2m
Auditor:
Deloitte & Touche
Nov. 24
MATERIAL WEAKNESS IDENTIFIED —
Subsequent to the issuance of the Company’s financial statements for the year ended February 29, 2004, the Company determined that an overstatement of the fiscal 2004 asset impairment charge related to the closure of its Middletown, Ohio coil coating facility required restatement of its annual financial statements for the fiscal year ended February 29, 2004 and the quarterly financial statements for the fiscal quarter ended May 31, 2004. The error was indicative of a material weakness of internal controls in reviewing significant transactions by someone other than the person preparing the bookkeeping entry. Since the error, the Company increased its accounting staff, reinforced its requirements for review of significant transactions and established an internal audit department to support and verify its efforts to improve internal controls.
Valcom—
A/V equipment services.
2003 Sales: $2.2m
Auditor:
Kabani & Co.
Nov. 23
SEVERAL WEAKNESSES IDENTIFIED —
OUR OFFICERS IDENTIFIED SEVERAL WEAKNESSES IN OUR DISCLOSURE CONTROLS.
Our records of stock and equity related transactions were not updated on a timely basis and do not reflect the current ownership of ValCom as accurately as they might.
We recorded a significant number of audit adjustments during the fourth quarter, which were required to properly state the account balances at September 30, 2003.
The minutes of the Board of Directors' and stockholders' meetings were not always complete.
We drafted several agreements without consulting our legal counsel.
Although, we have taken steps to correct the above- referenced and strengthen our disclosure controls, we cannot be sure that we will be successful.
Blonder Tongue Laboratories—
Telecommunications equipment.
2003 Sales: $35.4m
Auditor:
BDO Seidman
Nov. 23
MATERIAL WEAKNESSES IDENTIFIED; BELIEVED REMEDIATED —
In connection with the completion of its review of the Company’s restated consolidated financial statements for the quarter ended March 31, 2004, the Company’s independent auditors, BDO Seidman, LLP (“BDO”), communicated to the Company’s Audit Committee that the following matters involving the Company’s internal controls and operations were considered to be “ reportable conditions,” as defined under standards established by the American Institute of Certified Public Accountants or AICPA:
Lack of reconciliation of accounts payable balances to vendor accounts.
Inadequate review of details of accounts payable.
Inadequate review of slow moving inventories.
Mod-Pac Corp.—
Paper & paper product manufacturer.
2003 Sales: $41.2m
Auditor:
Ernst & Young
Nov. 23
MATERIAL WEAKNESS IDENTIFIED —
As a result of a review of compliance with financial statement closing procedures, the Company's senior management determined that routine account reconciliations for accounts, such as cash and accounts payable, had not been performed in an accurate and timely manner during fiscal years 2003 and 2004. Management immediately undertook an intensive program to complete and/or re-perform such account reconciliations, which was completed on November 22, 2004.
Management has determined that this failure to comply with the routine account reconciliation procedures is a material weakness in internal controls and has discussed this material weakness with both the Company's audit committee and its auditors, Ernst & Young, LLP. Ernst & Young, LLP has concurred in this determination….
Dynegy Holdings—
Holding company
2003 Sales: $4.7b (Subsidiary of Dynegy)
Auditor:
PwC
Nov. 22
WEAKNESSES IDENTIFIED —
...Weaknesses have also been identified in the consolidated enterprise’s tax accounting and tax reconciliation controls and processes that make this an area of particular focus. In the third quarter 2004, we determined that adjustments related to our deferred income tax accounts in periods prior to 2004 were required. We identified this deficiency and promptly brought it to the attention of Dynegy’s audit and compliance committee and independent auditors…
AGL Resources—
Natural gas utilities.
2003 Sales: $983.7m
Auditor:
PwC
Nov. 22
MATERIAL WEAKNESSES IDENTIFIED IN RECENTLY ACQUIRED COMPANY —
During fiscal years 2003 and 2004, NUI’s external and internal auditors performed audits which identified material weaknesses in NUI’s internal controls. Additional internal control issues and deficiencies were identified in the focused audit of NUI that was conducted at the request of the New Jersey Board of Public Utilities. Although NUI continues to assess its systems of internal control in order to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, we believe NUI will continue to have material deficiencies in its internal controls after closing that we will be required to address and resolve…
Navidec—
IT services
2003 Sales: $1m
Auditor:
Johnson, Miller & Co.
Nov. 22
WEAKNESSES, DEFICIENCIES IDENTIFIED —
…The Chief Executive Officer of the Company, Thomas E. Kelly, is currently serving as the Chief Financial Officer of the Company. Mr. Kelly is not a certified public accountant, nor does the Company currently have any full-time employees or officers who possess the training and experience typically expected of the Chief Accounting Officer or Chief Financial Officer of a public company. Mr. Kelly, in conjunction with the Company’s accounting and legal advisors, has reviewed the Company’s disclosure controls and procedures and concluded that the Company’s current disclosure controls and procedures are not adequate to ensure that (i) all material information relating to the Company and its consolidated subsidiaries would be made known to him by individuals within those entities, including during the period in which this report was being prepared, and (ii) that all material information required to be disclosed in its SEC reports is consistently recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Escalon Medical Corp.—
Medical devices.
2004 Sales: $14.7m
Auditor:
Parente Randolph
Nov. 22
MATERIAL WEAKNESSES IDENTIFIED —
...The Company's independent registered public accounting firm identified the following material weaknesses in the Company's acquired Drew businesses related to:
the Company's financial reporting closing and
review process;
inadequate documentation, untimely account
reconciliations and account analysis of certain
balance sheet accounts; and
untimely and inadequate communication of Escalon
policies and procedures to personnel of newly
acquired business….
Veridicom International—
Collaborative software.
2003 Sales: $0.1m
Auditor:
AJ Robbins
Nov. 22
MATERIAL WEAKNESSES IDENTIFIED —
…Based on their evaluation, our CEO and CFO have concluded that our disclosure controls and procedures needed improvement and were not adequately effective to ensure timely reporting with the Securities and Exchange Commission.
Our CEO and CFO are taking an active role in identifying the deficiencies and implementing corrective measures, which includes the establishment of new internal policies related to financial reporting. We believe that the new internal policies will address the conditions identified by our CEO and CFO as material weaknesses in our disclosure controls and procedures. We will continue to monitor the effectiveness of these new internal policies.
Walker Financial Corp.—
Financial services.
2003 Sales: $1.7m
Auditor:
Marcum & Kliegman
Nov. 22
MATERIAL WEAKNESS IDENTIFIED —
During November 2004, our independent auditors, Marcum & Kliegman LLP, advised us that the auditors had identified a deficiency in internal controls, which was designated a "material weakness." The material weakness indicated that there is inadequate structure within our accounting department. We believe this resulted from continued cost cutting efforts, which resulted in the termination of employees during our fiscal year ending December 31, 2004. Management believes that sufficient compensating controls have been implemented to minimize the risks associated with this material weakness, including using a bookkeeping service to review monthly closings.
Tengasco—
Oil & gas exploration.
2003 Sales: $6.2m
Auditor:
BDO Seidman
Nov. 22
MATERIAL WEAKNESS IDENTIFIED —
The Company’s management, including the Company’s Chief Financial Officer (the “Certifying Officers”), have concluded that in one matter the Company’s disclosure controls and procedures were not effective with respect to that matter to ensure that material information was recorded, processed, summarized and reported by management of the Company on a timely basis in order to comply with the Company’s disclosure obligations under the Securities Exchange Act of 1934, and the rules and regulations thereunder. This deficiency constituted a material weakness, and detailed below are the facts surrounding this matter... In July 2004 in connection with the completion of the Company's Form 10-Q for the quarter ended June 30, 2004, mangaement [sic] and BDO Seidman, LLP, the Company's auditors, determined that there was an error in calculating the estimated fair value of the Company's mandatory Preferred Stock in accordance with the adoption of SFAS No. 150…
National Financial Partners Corp.—
Asset management.
2003 Sales: $479.6m
Auditor:
PwC
Nov. 19
SIGNIFICANT DEFICIENCY IDENTIFIED —
…The Company’s CEO and the CFO have concluded that the misapplication was the result of a significant deficiency that existed in the control process regarding the selection and application of GAAP and the review process of the implementation of accounting guidance to new transactions. The Company concluded it was not a material weakness because, among other things, the error resulting in the misapplication occurred in one acquired firm five years earlier, was correctly applied to subsequently acquired firms, was identified through an analysis performed by management and did not result in a restatement of net income or net income per share, its consolidated statements of financial condition, changes in stockholders’ equity or cash flows….
United PanAm Financial Corp.—
Financial services.
2003 Sales: $13.3m
Auditor:
Stonefield Josephson
Nov. 19
MATERIAL WEAKNESSES, DEFICIENCIES IDENTIFIED —
… We have in the past discovered, and may in the future discover, material weaknesses in our internal controls as defined under interim standards adopted by the Public Company Accounting Oversight Board (“PCAOB”) that require remediation. Furthermore, our former independent auditor has, in the past, advised us that it had noted certain material weaknesses in the Company’s internal financial reporting and accounting controls and we have also noted material weaknesses….As a result of the material weaknesses we have identified in our internal controls, we also identified certain deficiencies in some of our disclosure controls and procedures that we believe require remediation.
WorldGate Communications—
Telecommunications equipment.
2003 Sales: $3.9m
Auditor:
Grant Thornton
Nov. 17
MATERIAL WEAKNESS IDENTIFIED —
…Based on that evaluation, the chief executive officer and chief financial officer concluded that a "significant deficiency", that is considered to be a " material weakness," (as defined under the standards established by the American Institute of Certified Public Accountants) existed with respect to the Company's reporting of the various components of the June 2004 private placement of Series A preferred stock and warrants. As a result the Company has restated its financial statements in its June 30, 2004 10-QA. The Company will evaluate the need to enhance its internal resources, including obtaining or engaging outside experts to address the accounting for complex transactions. The Company will evaluate the findings of such experts in addressing these matters. With the exception of this condition, the Company’s disclosure controls and procedures were found to be effective.
CanArgo Energy Corp.—
Oil & gas exploration
2003 Sales: $8.1m
Auditor:
LJ Soldinger Associates
Nov. 17
MATERIAL WEAKNESSES IDENTIFIED —
The deficiencies identified included the following weaknesses in various financial areas of the Company:
Maintaining a consolidation process which in certain cases makes it difficult to trace subsidiary company balances and adjustments back to source data;
Recording various journal entries at the consolidation level but not recording them at the subsidiary level during the course of the year, resulting in accumulated differences between the consolidated trial balances and subsidiary trial balances;
Maintaining accounting records for certain offices on spreadsheets outside of our standard accounting software on a cash basis not in accordance with accounting principles generally accepted in the United States;
Lacking a local responsible person with necessary experience to supervise accounting and reporting for our Georgian operations;
Maintaining a capital assets continuity schedule without sufficient detail;
Failing to investigate all intercompany balance differences;
Lacking certain controls relating to monitoring and reconciliation of inventory;
Lacking certain controls relating to the proper presentation of accounts receivable and accounts payable; and
Lacking certain controls to facilitate recording of non-recurring transactions.
Although we have not formally assessed the materiality of each deficiency identified, we believe that the deficiencies in the aggregate may constitute a material weakness in our internal controls. As such, we are actively rectifying these deficiencies and have devised an action plan and expect to have it fully implemented by December 31, 2004.
Adept Technology—
Industrial control products manufacturer.
2004 Sales: $49.4m
Auditor:
Ernst & Young
Nov. 16
SIGNIFICANT DEFICIENCY IDENTIFIED —
…While we have not identified any material weaknesses in our internal controls that would cause us to deem such internal controls to be ineffective, the company has determined that it had a significant deficiency as of October 2, 2004 insofar as we lacked the expertise to account for standalone software licensing, a new business activity for the Company in the quarter.
Critical Home Care—
Health care product.
2003 Sales: $5.4m
Auditor:
BDO Seidman
Nov. 16
MATERIAL WEAKNESS IDENTIFIED —
…The inventory system at the Company’s New York locations does not adequately account for the inventory cost and movement and the identification of obsolete items on a timely basis….In addition, BDO has advised the Company that it consider [sic] the matter, which is listed above, to be a “material weakness” that, by itself or in combination with any other factor, may result in a more than remote likelihood that a material misstatement in the Company’s financial statements will not be prevented or detected by the Company’s employees in the normal course of performing their assigned functions….
New Horizons Worldwide—
Education & training services.
2003 Sales: $139.2m
Auditor:
Grant Thornton
Nov. 15
MATERIAL WEAKNESSES IDENTIFIED —
During the quarter ended September 30, 2004 and through the date of this filing, the Company identified material weaknesses in its internal control environment and in certain activity-level controls… The turnover or change of personnel in the Company’s accounting and finance department has resulted in the loss of significant knowledge and experience in the Company’s accounting policies and procedures. These personnel changes have increased the amount of time required to perform control procedures and develop financial information…
Commerce Energy Group—
Retail energy marketing.
2004 Sales: $210.6m
Auditor:
Ernst & Young
Nov. 15
MATERIAL WEAKNESS IDENTIFIED —
…We have in the past discovered, and may in the future discover, areas of our internal controls that need improvement. For example, in our preparation for our 2004 audit, we discovered an unreconciled energy accounting issue that caused us to restate our second and third quarter reported results. Our external auditor identified this issue as a reportable condition and a material weakness, which means that this was an issue that in the auditor’s judgment could adversely affect our ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements…
Enzon Pharmaceuticals—
Biopharmaceutical company.
2004 Sales: $169.6m
Auditor:
KPMG
Nov. 15
MATERIAL WEAKNESS IDENTIFIED —
…Executive management and the Finance and Audit Committee determined that there was a material weakness relating to the timely review and monitoring of certain account analyses, including the derivative hedging instrument and the assessment of the realizeability of deferred tax assets established through accumulated other comprehensive loss. In connection with restating our consolidated financial statements as of June 30, 2004 on Form 10-K/A, our acting principal executive officer and principal financial officer supervised and participated with other management in reevaluating the effectiveness of our disclosure controls and procedures for the year ended June 30, 2004 and based on the reevaluation, the acting principal executive officer and principal financial
officer concluded that as of the year ended June 30, 2004 there were deficiencies in our disclosure controls and procedures, which has resulted in the conclusion that the disclosure controls were ineffective…
Vital Images—
Medical equipment & supplies.
2003 Sales: $26.8m
Auditor:
PwC
Nov. 15
MATERIAL WEAKNESS IDENTIFIED —
The decision to restate these financial statements was made by Vital Images’ management after consultation with the chairman of the Company’s Audit Committee, after discovery and analysis of the omission. As part of the preparation and testing of controls under Section 404 of the Sarbanes-Oxley Act of 2002, Vital Images discovered that it had not recognized deferred revenue from certain maintenance and service arrangments when the services were performed in 2003 and the first three quarters of 2004. Vital Images has identified two causes for the omission — manual procedures that did not always identify when services were provided and insufficient review of older deferred revenue balances. Vital Images has designed new procedures and controls that it will immediately implement to improve the process for recognizing revenue from maintenance and services and to review deferred revenue schedules on a timely basis. With these improvements, Vital Images expects to remedy this weakness, viewed by management as a material weakness under Section 404 of the Sarbanes-Oxley Act of 2002, by December 31, 2004.
NII Holdings—
Wireless communications services.
2003 Sales: $938.7m
Auditor:
PwC
Nov. 15
MATERIAL WEAKNESSES IDENTIFIED —
…Subsequent to the filing of our quarterly report on Form 10-Q for the period ended June 30, 2004, we identified bookkeeping errors in two liability accounts at our operating company in Mexico. Separately, on November 4, 2004, we were notified by our independent registered public accountants of errors related to our accounting policy and treatment of the subsequent reversal of deferred tax asset valuation reserves established at the time of fresh-start accounting as of October 31, 2002…During our evaluation of these items, we concluded the errors (i) reflected material weaknesses in our internal control over financial reporting with respect to account reconciliations at Nextel Mexico and (ii) may have reflected a material weakness in our internal control over financial reporting with respect to the accounting and reporting of deferred income taxes…
Western Wireless Corp.—
Wireless network operator.
2003 Sales: $1.5b
Auditor:
PwC
Nov. 15
MATERIAL WEAKNESS IDENTIFIED —
…[W]e have determined that certain direct labor costs associated with network construction at our international operations which had originally been recorded as operating expenses in prior periods should have been capitalized and depreciated and required correction. We also determined the cumulative impact of these corrections would have resulted in a material increase to our net income for the third quarter of 2004. The cause of this capitalization error was the inconsistent application of our corporate accounting policies at certain of our international operations….Management also determined that the internal control deficiency that made these restatements necessary is indicative of a material weakness, as defined by the Public Company Accounting Oversight Board’s Auditing Standard No. 2.
Duke Capital—
Part of Duke Energy Corp.
2003 Sales: $22.5b
Auditor:
Deloitte & Touche
Nov. 15
SIGNIFICANT DEFICIENCY IDENTIFIED —
…Deloitte & Touche LLP (Deloitte), noted certain matters involving Duke Capital’s internal controls that it considered to be a reportable condition under the standards established by the Public Company Accounting Oversight Board (United States). The reportable condition was not considered by Deloitte to be a material weakness under the applicable auditing standards and had no material affect on Duke Capital’s financial statements. … Management evaluated such revision and determined that while this represents a significant deficiency, it is not a material weakness and that its disclosure controls are effective.
Apex Silver Mines—
Precious metals mining.
2003 Sales: $0.0
Auditor:
PwC
Nov. 15
MATERIAL WEAKNESS IDENTIFIED —
…However, the Company's management was advised by its registered independent public auditor that, during the course of their review of the Company's financial statements for the quarter ended September 30, 2004, they have noted a material weakness in internal controls related to the financial reporting process with respect to the Company's ability to properly apply generally accepted accounting principles to non-routine transactions or to transactions subject to new or complex accounting pronouncements, as the result of a lack of adequate staffing in the Company's accounting department….
Whitney Information Network—
Education & training services.
2003 Sales: $95.0m
Auditor:
Ehrhardt Keefe Steiner & Hottman
Nov. 15
MATERIAL WEAKNESS IDENTIFIED —
In connection with the interim review of the Company's financial statements, the Company's auditors communicated to the Company's management and the Audit Committee of the Board of Directors reportable conditions involving the Company's internal financial controls. The material weakness noted by the auditors relate primarily sufficient human resources within our accounting and financial reporting function and the preparation of financial statement disclosures relating thereto. The Company has assigned a high priority to the remediation of the reportable conditions.
Cambridge Heart—
Medical equipment & supplies
2003 Sales: $6.9m
Auditor:
PwC
Nov. 15
MATERIAL WEAKNESS IDENTIFIED —
In connection with the audit of our financial statements for the year ended December 31, 2003, the independent auditors informed us that they had discovered a number of issues that constituted a material weakness in our internal control over financial reporting. Management and the Audit Committee identified conditions relating primarily to our product return and sales order processing policies and procedures that were considered to be a material weakness in our disclosure controls and our internal controls for the year ended December 31, 2003 under standards established by the American Institute of Certified Public Accountants and the Securities and Exchange Commission. In particular, the weaknesses in both our disclosure controls and internal controls pertained to the following areas:
proper authorization of exceptions to the company’s product return policy to include the appropriate finance personnel,
compliance with company policies requiring the inclusion of all agreements and commitments with customers on the customer’s order documents, and
as a consequence, the failure, in a limited number of instances, to properly integrate and evaluate product returns and non-standard conditions of sale as part of the revenue recognition review process…
Nortech Systems—
Electronics manufacturer.
2003 Sales: $58m
Auditor:
McGladrey & Pullen
Nov. 15
DEFICIENCY IDENTIFIED, REMEDIED —
…The Company believes the deficiency, regarding the ability to forecast financial results accurately enough to determine expected compliance with debt covenants at future quarter ends, has been remedied by improving and expanding its monthly forecasting process put into place in the first week of June 2004. At the August 13, 2004 discussion with the Chairman of the Company’s audit committee and management, KPMG stated that this deficiency did not in its view constitute a “ material weakness” within the meaning of the standards established by the American Institute of Certified Public Accountants…
Asconi Corp.—
Wine import, export
2004 Sales: $14.3m (first 9 months only)
Auditor:
NA
Nov. 15
CONTROLS DEEMED INEFFECTIVE —
…We concluded that our disclosure controls and procedures were not effective to ensure that material information is recorded, processed, summarized and reported by our management on a timely basis in order to comply with our disclosure obligations under the Exchange Act and the rules and regulations thereunder due to the following reasons:
we lacked a chief accounting officer having the necessary level of experience with U.S. generally accepted accounting principles (US GAAP) and SEC reporting;
we lacked controls to insure that agreements, contracts and other documents … were provided to and reviewed by accounting and financial reporting personnel on a timely basis…
we lacked controls to insure that actions taken by our board of directors were documented in their minutes on a timely basis to insure that the financial reporting and disclosure implications of such actions could be considered and reflected in the financial statements in the proper periods; and
our audit committee was not adequately manned, or sufficiently active in accordance with its charter, including its duties to discuss, with management and our independent auditors, prior to the release of each periods’ financial statements, the financial statements themselves, significant accounting policies and estimates, our internal controls, and the scope and findings of the work performed by our independent auditor in its audit or review of the financial statements.
Eagle Exploration—
DESCRIPTION
2004 Sales: $0.1m
Auditor:
Ehrhardt Keefe Steiner & Hottman
Nov. 15
WEAKNESS IDENTIFIED —
…In connection with the audit of the year ended March 31, 2004, there were no "Reportable Events" within the meaning of Item 304(a)(1)(v) of Regulation S-K. However, there is a lack of segregation of duties that is considered to be a weakness in the Registrant's internal controls relating to the adequacy of staffing and size of the accounting and finance department.
Amen Properties—
Commercial property investment.
2003 Sales: $4.3m
Auditor:
Johnson, Miller & Co.
Nov. 15
DEFICIENCIES IDENTIFIED —
Management has identified and reported to the Audit Committee of the Company's Board of Directors certain matters involving internal control deficiencies. The deficiencies noted were (a) a lack of documented control procedures (b) the lack of segregation of duties and (c) insufficient supervision of the Company's accounting personnel. The Company believes such deficiencies were primarily attributable to the transition the Company went through during the end of 2002 and 2003 and changes in personnel within the accounting department.
Fedders Corp.—
HVAC equipment.
2003 Sales: $55.6m
Auditor:
Deloitte & Touche
Nov. 15
MATERIAL WEAKNESS IDENTIFIED —
During the three months ended September 30, 2004, the Company identified certain internal control weaknesses in Fedders Suning Nanjing Co,. Ltd., a joint venture in China. The Company recorded $0.8 million related to inventory shrinkage and $0.7 million of manufacturing variances for the three months and nine months ended September 30, 2004. The Company is taking immediate corrective actions…
Highwoods Properties—
Office REIT.
2003 Sales: $442.5m
Auditor:
Ernst & Young
Nov. 15
MATERIAL WEAKNESSES IDENTIFIED; IMPROVEMENTS MADE —
…On October 26, 2004, Ernst & Young LLP advised our Audit Committee that they identified the following material weaknesses during their audits of the restated financial statements for 2003, 2002 and 2001: inadequate procedures for appropriately assessing and applying accounting principles to complex transactions; lack of adequate finance and accounting staff to appropriately identify and evaluate accounting for transactions; inadequate procedures to ensure critical information regarding a transaction is known by the persons accounting for such transaction; and lack of application of GAAP to transactions due to perceived immateriality of transactions…
WRC Media—
Book publisher.
2002 Sales: $210m
Auditor:
Deloitte & Touche
Nov. 15
MATERIAL WEAKNESSES IDENTIFIED —
…Our independent auditors identified the following two such "material weaknesses": (1) numerous adjusting entries proposed as a result of our 2003 audit were recorded by the Company to correct the underlying books and records, including previously reported results for 2002 and 2001, and (2) there were an insufficient number of qualified accounting personnel appropriate for their positions, specifically within the external financial reporting area….
Click Commerce—
Supply chain & logistics software.
2003 Sales: $18.2m
Auditor:
AUDITOR
Nov. 15
MATERIAL WEAKNESS IDENTIFIED —
…In connection with performing a review of the Company’s interim financial information, KPMG issued a letter to the Company to communicate the control deficiencies that were considered to be a material weakness. KPMG indicated, and the Company agreed that, the Company’s quarter-end reporting schedule is too compressed, allowing insufficient time for the Company to perform adequate reviews of its accounting records and prepare appropriate support for the accounting positions taken by the Company, and for its independent public accountants to complete its review of the Company’s financial statements, prior to the Company’s release of its financial results...
HemaCare Corp.—
Specialized health care services.
2003 Sales: $27.5m
Auditor:
Ernst & Young
Nov. 15
SEVERAL WEAKNESSES FOUND; NOT LISTED —
The Company recently conducted an extensive evaluation of the existing internal control structure. Management identified several internal control weaknesses. Of these, the Company has alternative controls in place, which
management believes prevents any material misstatement of the Company's financial statements. Nevertheless, management intends to modify the existing internal control structure to eliminate any significant weaknesses
with the objective of eliminating or reducing reliance on alternative controls.
Frozen Food Express Industries—
Specialty trucking.
2003 Sales: $404.2m
Auditor:
KPMG
Nov. 15
MATERIAL WEAKNESS IDENTIFIED —
In connection with their review of the company's September 30, 2004 interim financial statements, our independent auditors, KPMG identified certain matters involving the operation of our internal controls that they consider to be a material weakness….KPMG's conclusion was based on two adjustments that were made in the course of their review process that, in their view, should have been identified and resolved by the company as part of the internal close process. The adjustments involved a calculation error that caused the overstatement of accident claim reserves and the failure to update the accident claim reserve to reflect newly available information. The adjustments were made prior to the public release of our results and do not affect previously announced results…
Hersha Hospitality Trust—
Hotel & motel REIT.
2003 Sales: $19.4m
Auditor:
KPMG
Nov. 15
SIGNIFICANT DEFICIENCY IDENTIFIED —
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. As part of this review, management has identified a significant deficiency with respect to the level of resources required for the prompt evaluation of transactions in accordance with financial reporting requirements per GAAP. 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.
Power 3 Medical Products—
Medical equipment & supplies.
2003 Sales: $0.0m
Auditor:
Kingery, Crouse & Hohl
Nov. 15
DEFICIENCIES IDENTIFIED —
Subsequent to management's identification of the misstatements in our financial statements and after discussing the misstatements with our independent registered public accounting firm, we have identified certain deficiencies and issues with our internal controls. These deficiencies and issues include:
Deficiencies related to inadequate or ineffective policies for documenting transactions…
Deficiencies related to execution of processes relating to accounting for transactions...
Deficiencies related to the internal control environment…we had deficiencies due to inadequate staffing in our accounting department and the lack of a full-time chief financial officer...
Commonwealth Energy Corp.—
DESCRIPTION
2004 Sales: $210.6m
Auditor:
Ernst & Young
Nov. 15
MATERIAL WEAKNESS IDENTIFIED —
In the course of preparing our financial statements for the year ended July 31, 2004 and in connection with the corresponding audit by our independent auditors, Ernst & Young LLP, the Company’s management identified certain deficiencies in the Company’s internal controls relating to the timely reconciliation of energy purchases and sales. Our independent auditors, Ernst & Young LLP, have advised the Audit Committee that these internal control deficiencies constitute reportable conditions and, collectively, a material weakness as defined in Statement on Auditing Standards No. 60….
Trimas Corp.—
Auto parts manufacturing.
2003 Sales: $905m
Auditor:
KPMG
Nov. 15
MATERIAL WEAKNESS IDENTIFIED —
In connection with preliminary implementation activities to comply with the requirements of Sarbanes-Oxley Section 404, and prior to the issuance of our financial statements for the quarter ended September 30, 2004, the Company identified certain control deficiencies at its Consumer Products business unit within its Cequent Transportation Accessories segment. The Company determined that uninvoiced accounts payable were recorded in error as a reduction to cost of sales in the first two quarters of 2004…Due to the control deficiencies described herein, management concluded that, although the error was limited to the Consumer Products business unit, there was a material weakness in the disclosure controls and procedures at this business unit related to the proper accounting and reporting for the matter that resulted in the restatement.
Rentrak Corp.—
Retail.
2004 Sales: $78.1m
Auditor:
NA
Nov. 15
MATERIAL WEAKNESSES IDENTIFIED —
…During the period covered by this report, management identified internal control deficiencies, as described below, that constitute material weaknesses as defined in Statement of Auditing Standards No. 60….Some of these weaknesses related to the discovery that one of our employees had embezzled funds from us over a period of several years by exploiting weaknesses in our internal controls related to the segregation of duties within the accounting function. Other weaknesses related to the discovery of accounting errors as a result of the misinterpretation and misapplication by our internal accounting staff of certain terms in our revenue sharing agreements with program suppliers. Our outside auditor also advised us of certain organizational and resource deficiencies related to our processes for monitoring, analyzing and reporting on new accounting and reporting pronouncements, including our process for summarizing, and external reporting of, financial information…
Belden CDT—
Wire & cable manufacturing.
2003 Sales: $826.5m
Auditor:
Ernst & Young
Nov. 15
DEFICIENCIES IDENTIFIED —
…The Company is in the process of conducting this assessment and based on the result of procedures performed to date has identified significant internal control deficiencies relating to the valuation of inventory at certain former CDT operating locations. The Company has also identified a significant deficiency in its temporary consolidation procedures relating to legacy CDT operations implemented for the integration period following the Merger….
Standard Motor Products—
Auto parts manufacturing.
2003 Sales: $678.8m
Auditor:
Grant Thornton
Nov. 15
SIGNIFICANT DEFICIENCY IDENTIFIED —
On November 1, 2004, our independent registered public accounting firm, Grant Thornton LLP, orally notified our Audit Committee that they had identified several deficiencies which, when considered in the aggregate, constituted a significant deficiency regarding our internal controls. However, we have no reason to believe that these deficiencies resulted in (a) a material weakness in our internal controls or (b) any material inaccuracy to our financial statements. The deficiencies noted related to (a) network security issues, (b) back-up and recovery matters, (c) disaster recovery and business continuity plans and procedures, and (d) documentation regarding IT policies and procedures. We have assigned a high priority to the short term and long term improvement of our internal controls and are in the process of correcting all of these deficiencies. We plan to remediate these deficiencies as promptly as practicable.
Global Crossing—
Data services.
2003 Sales: $2.9b
Auditor:
Grant Thornton
Nov. 15
WEAKNESS IDENTIFIED —
…Based on our own internal review and taking into account the results of Deloitte & Touche’s investigation, we believe that the following control issues surrounding cost of access accounting in North America in the aggregate constituted a material weakness in our internal control over financial reporting: (1) the failure to reconcile estimates of cost of access expenses to vendor invoiced amounts on an aggregate basis; (2) the lack of a clear understanding of cost of access-related processes and procedures and the lack of effective communications among relevant personnel; (3) inadequate documentation of such processes and procedures; (4) an inappropriate focus of cost of access accounting on the balance sheet, with entries flowing through the income statement only indirectly; (5) inaccuracies in the schedules used to help validate the adequacy of the monthly cost of access accrual; and (6) the lack of contemporaneous documentation to support decisions not to accrue for certain disputed amounts….
99 CENTS ONLY STORES—
Discount & variety retail.
2003 Sales: $39.6m
Auditor:
Daszkal Bolton
Nov. 15
DEFICIENCIES IDENTIFIED; BELIEVED CORRECTED —
…During the period covered by this quarterly report, as part of the physical inventory reconciliation and monthly closing processes, we identified and corrected significant deficiencies in certain of our procedures surrounding accounts payable and inventory cut-off and the accumulation and tracking of construction in progress.
University Bancorp—
Regional banks & thrifts.
2003 Sales: $8.7m
Auditor:
Grant Thornton
Nov. 15
MATERIAL WEAKNESS IDENTIFIED —
The following three significant deficiencies were identified pursuant to standards established by the Public Company Accounting Oversight Board (PCAOB):
The Company lacked formalized accounting policies and procedures, including written procedures for the quarterly preparation of form 10Q in accordance with applicable SEC guidelines;
The Company uses spreadsheets to perform consolidations, without appropriate monitoring controls, which could result in errors in the financial statements
The Company has insufficient staff in the accounting and financial reporting departments.
Tarrant Apparel Group—
Women’s clothing.
2003 Sales: $320.4m
Auditor:
Ernst & Young
Nov. 15
SIGNIFICANT DEFICIENCIES IDENTIFIED —
…In connection with its audit of our Consolidated Financial Statements for the year ended December 31, 2003, Grant Thornton LLP, our independent accountants, advised the Audit Committee and management of our need for additional staff with expertise in preparing required disclosures in the notes to the financial statements, and our need to develop greater internal resources for researching and evaluating the appropriateness of complex accounting principles and evaluating the effect of new accounting pronouncements on the Company. Grant Thornton LLP considers these matters to be significant
deficiencies as that term is defined under standards established by the American Institute of Certified Public Accountants…
I-Village—
Internet portal
2003 Sales: $55.2
Auditor:
PwC
Nov. 15
PROCEDURES IMPLEMENTED TO CORRECT DEFICIENCIES —
…During the third quarter of 2004, we implemented new procedures and controls that management has identified as having certain deficiencies. However, there has been no change in our internal controls over financial reporting that occurred during the third quarter of 2004 that has materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. Areas that management has identified as requiring improvement include documentation of controls, additional controls over spreadsheets and timely account reconciliations. Management will consider these matters when assessing the effectiveness of the company’s internal control over financial reporting at year end.
Phone1GlobalWide—
Telecommunications services.
2004 Sales: $14.1m
Auditor:
Grant Thornton
Nov. 15
MATERIAL WEAKNESSES IDENTIFIED —
Grant Thornton LLP, in connection with the audit of the Company's two most recent fiscal years ended March 31, 2004, identified significant deficiencies, that in the aggregate, constitute material weaknesses under standards
established by the Public Company Accounting Oversight Board. These matters relate to our processes of identifying related parties and reviewing and approving our CEO's expense report…
GulfMark Offshore—
Oil & gas field services.
2003 Sales: $129m
Auditor:
Ernst & Young
Nov. 15
MATERIAL WEAKNESSES IDENTIFIED —
…During the review of the third quarter results, our independent registered public accounting firm identified internal control deficiencies related to the complexity of our multi-national operations. These deficiencies were considered by them to be material weaknesses which, if not corrected, could result in a material misstatement of our annual or interim financial results. Our independent registered public accounting firm concluded that we needed to further evaluate our resources, processes and controls to implement improvements in our internal controls surrounding our financial statement close process.
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