Item 4. Controls and Procedures
ITEM 4: CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
With the participation of management, our principal executive officer and principal financial officer carried out an evaluation, pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of September 30, 2023 because of the existing material weaknesses in internal control over financial reporting as previously disclosed in our Annual Report on Form 10-K for the year end December 31, 2022.
Notwithstanding these material weaknesses, our management, including our principal executive officer and principal financial officer, has concluded that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q are fairly stated in all material respects in accordance with GAAP for each of the periods presented.
Management's Plan to Remediate the Material Weaknesses
In relation to the Material Weakness identified around lack of sufficient complement of resources as previously disclosed in our second quarter Form 10Q, the Company has hired a new Chief Accounting Officer and a Director of Technical Accounting with public company and SOX experience that are already working on the implementation of processes and controls required to remediate these material weaknesses. During the quarter ended September 30, 2023, management has continued to work on enhancing our finance department by hiring an assistant controller as well as an additional member to our Financial Reporting team as well as continuing to expand our technical accounting department. These are key individuals with the appropriate level of accounting knowledge, experience, and training to appropriately analyze, record, and disclose accounting matters timely and accurately as well as establish effective processes and controls. At this point we believe we have added the necessary talent and resources with the proper accounting knowledge to support our growth and to continue to strengthen our Internal Control Over Financial Reporting.
In relation to the Material Weakness identified around timely clearing of discrepancies arising from the three-way-match process, during the quarter ended September 30, 2023, management effectively designed and implemented the necessary controls to ensure a timely clearing of discrepancies arising from the three-way match process of matching purchase orders, invoices, and item receipts. Although the remediated controls have been effective to date, the material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time for management to conclude, through testing, that such controls are operating effectively. We expect that the material weakness will be remediated by December 31, 2023.
Related to the lack of segregation of duties Material Weakness, during the quarter ended September 30, 2023, management effectively designed and implemented the necessary controls to ensure appropriate segregation of duties and adequately review user access to transactions within business processes relevant to significant accounts and disclosures within the general ledger system across the Company. Although the remediated controls have been effective to date, the material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time for management to conclude, through testing, that such controls are operating effectively. We expect that the material weakness will be remediated by December 31, 2023.
Finally, related to the material weakness on revenue recognized over the percentage of completion input method, the necessary controls have been designed and implemented during the quarter ended September 30, 2023 to ensure accuracy of the cost-to-date, estimates of the cost-to-complete and the determination of revenue recognized for certain project-based contracts. Although these controls have been designed and implemented, we will continue to evaluate whether further enhancement or modification to these controls in future periods is needed. The material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time for management to conclude, through testing, that such controls are operating effectively.
Changes in Internal Control Over Financial Reporting
Except as described above, there were no other changes in internal control over financial reporting identified in the evaluation for the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II: OTHER INFORMATION
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