ENTRAVISION COMMUNICATIONS CORP 10-Q

ITEM 4. CONTROLS AND PROCEDURES We conducted an evaluation, under the supervision and with the participation of management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation 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) as of the end of the period covered by this quarterly report. Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of the evaluation date, our disclosure controls and procedures were not effective due to material weaknesses in our internal control over financial reporting identified in our 2020 10-K for the year ended December 31, 2020, as described below. Notwithstanding the conclusion that our disclosure controls and procedures were not effective as of the end of the period covered by this report, we believe that our consolidated financial statements and other information contained in this quarterly report present fairly, in all material respects, our business, financial condition and results of operations for the interim periods presented. Material Weakness A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. 42 As previously disclosed in our 2020 10-K, as a result of our expanding business operations and geographic scope, primarily related to our acquisition of a majority interest in Cisneros Interactive in October 2020, we have experienced a significant increase in the volume of accounting transactions, the number of jurisdictions in which we operate and the number of control activities necessary to properly present consolidated results. Cisneros Interactive operates in multiple countries, uses multiple currencies and, prior to the acquisition, was a private company with limited accounting and financial reporting personnel and other resources with which to address its internal controls and procedures. Our acquisition was completed late in the year and there was a lack of sufficient accounting resources to appropriately address this increase in necessary control activities, which resulted in the following material weaknesses:  A material weakness related to opening balance sheet amounts related to our acquisition of Cisneros Interactive.  A material weakness over the revenue cycle of Cisneros Interactive.  A material weakness related to accounts payable, accrued liabilities, income taxes, payroll expenses, and other operating expenses of Cisneros Interactive. Although these control weaknesses did not result in any material misstatement of our consolidated financial statements for the periods presented, they could lead to a material misstatement of account balances or disclosures. Accordingly, management has concluded that these control weaknesses constitute material weaknesses. Management’s Plan for Remediation With respect to the material weaknesses identified above, management has discussed them with the Audit Committee, formulated a remediation plan and implemented key elements of the plan. Among other things, we have:  implemented the Company’s enterprise reporting software in several key countries in which Cisneros Interactive operates, to provide additional system controls.  implemented the Company’s payroll system across all countries in which Cisneros Interactive operates, to provide additional system controls.  hired additional accounting personnel in certain of our foreign locations, to strengthen our accounting resources to address the increase in control activities.  initiated the process of hiring additional accounting personnel in our corporate office, to strengthen our accounting resources to address the increase in control activities.  documented the key controls at Cisneros Interactive and started testing the design of these controls. We believe that a remediation plan incorporating the measures described above, as well as any additional measures we may identify and implement, will remediate the previously-identified material weaknesses and strengthen our internal control over financial reporting. As we continue to implement the remediation plan, we may also identify additional measures to address the material weaknesses or modify certain elements of the remediation plan. We also may implement additional changes to our internal control over financial reporting as may be appropriate in the course of remediating the material weaknesses. We will continue to review our financial reporting controls and procedures and, with the input and oversight of the Audit Committee, will continue to take steps to remedy the material weaknesses to reinforce the overall design and capability of our control environment. Inherent Limitations on Effectiveness of Controls A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all control issues or misstatements. Accordingly, our controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our control system are met. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Changes in Internal Control Other than changes noted above in relation to the material weaknesses identified in the fourth quarter of 2020 related to our acquisition of a majority interest in Cisneros Interactive described above, there have been no changes in our internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 43 PART II. OTHER INFO RMATION