Item 4. Controls and Procedures
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officers and principal financial officer, has evaluated the effectiveness of
our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of
the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive officers and principal financial officer have concluded that, as of such date, our
disclosure controls and procedures were not effective at a reasonable assurance level as of September 30, 2020 due to material weaknesses in internal control over financial reporting, as described below:
The management of the company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act. As of December 31, 2019, we identified material weaknesses in our internal control over financial reporting.
The material weaknesses we identified were as follows:
We did not maintain an effective control environment as we did not maintain a sufficient complement of accounting
and financial reporting resources commensurate with our financial reporting requirements. This material weakness contributed to the following material weaknesses:
We did not have sufficient resources to appropriately record revenue transactions, nor did we did have controls
in place to validate that the terms of the revenue transactions were appropriately entered into the revenue sub-ledger based on the terms of the arrangement with the customer.
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We did not design or maintain the appropriate controls to review the work of the third party used to assist
management in the accounting for taxes, including both income taxes and non-income based taxes.
We did not design or maintain effective controls over the period end financial reporting process and preparation
of financial statements. Specifically, we did not design and implement a sufficient level of formal accounting policies and procedures that define how transactions across the business cycles should be initiated, recorded, processed and reported and
appropriately authorized and approved.
These control deficiencies did not result in errors that were material to our
annual financial statements. However, these control deficiencies could result in a misstatement in our accounts or disclosures that would result in a material misstatement to the annual financial statements that would not be prevented or detected.
Accordingly, we determined that these control deficiencies constitute material weaknesses.
We are in the process of implementing measures
designed to improve our internal control over financial reporting and remediate the control deficiencies that led to the material weaknesses. As of September 30, 2020, we have completed the following remedial actions:
hired additional full-time accounting resources with appropriate levels of accounting knowledge and experience,
including but not limited to a Chief Financial Officer in the second half of 2018, a Vice President of Accounting, Vice President of FP&A and Director of Revenue in the first half of 2019;
reallocated responsibilities across the accounting organization to ensure that the appropriate level of knowledge
and experience is applied based on risk and complexity of transactions and tasks under review;
migrated to a new accounting enterprise resource planning (ERP) system that better meets the needs of
our business;
implemented controls to provide for a robust review of the accounting for taxes including the work prepared by
the third party as well as identification of changes to tax regulation to ensure all tax regulation changes that impact the Company are being evaluated timely and properly.
We have made significant progress towards remediating the material weaknesses by hiring qualified professionals for critical roles within our
accounting department and migrating to a new ERP system, and we continue enhancing and implementing new processes and controls to strengthen our internal control over financial reporting. We believe we are taking the steps necessary to remediate
these material weaknesses and will continue to review, revise, and improve the effectiveness of our internal controls as appropriate. Although we have made significant enhancements to our control procedures, these material weaknesses will not be
considered remediated until our controls are operational for a sufficient period of time, tested and management concludes that these controls are operating effectively.
Changes in Internal Control over Financial Reporting
During the third quarter, we have designed and implemented controls related to the accounting for taxes, including both income and non-income
based taxes, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Other than these changes, there have been no other changes in our internal control over financial reporting
identified in managements evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
Our management, including our principal executive officers and principal financial officer, do not expect that our disclosure controls and
procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems,
no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by
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management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that
any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Due to
inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II OTHER INFORMATION
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.