Mistras Group, Inc. 10-Q

ITEM 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Pursuant to Rule 13a-15(b) under the Exchange Act, our management carried out an evaluation, under the supervision and with the participation of our President and Chief Executive Officer and our Executive Vice President, Chief Financial Officer and Treasurer, of the effectiveness of the design and operation of our disclosure controls (as defined in Rule 13a-15(e) of the Exchange Act) and procedures. Based upon that evaluation, our President and Chief Executive Officer and our Executive Vice President, Chief Financial Officer and Treasurer concluded that, as of September 30, 2020, our disclosure controls and procedures were not effective, due to material weaknesses in our internal control over financial reporting processes and internal controls related to the accounting for income tax, as discussed below. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, 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 policies or procedures may deteriorate. Management previously disclosed material weaknesses in internal control over financial reporting in our 2019 Annual Report pertaining to financial reporting processes and internal control related to accounting for income taxes. The Company remains committed to an effective internal control environment and management believes that these actions, and the improvements management expects to achieve as a result, will remediate the material weakness. However, the material weaknesses will not be considered remediated until the controls operate for a sufficient period of time and management has concluded through testing that these controls operate effectively. The Company continues to execute on the remediation plans as outlined below. Remediation Plans Our management, with oversight from the Audit Committee of the Board of Directors, is actively engaged in remediation efforts to address the identified material weaknesses over income taxes. These efforts include: • Accelerate the risk assessment process related to changes in the business; • Enhance the design of controls surrounding the preparation and review of the income tax provision, and enhance the automation of the income tax processes and controls to allow for a timelier completion and review of internal controls; and • Accelerate all key activities within the income tax accounting and reporting process and controls by further increasing and expanding the capabilities of the income tax accounting resources in order to devote additional time and resources to the consolidated income tax accounting and reporting processes and controls. During the current quarter management has reviewed and enhanced the current processes and controls surrounding the preparation of the income tax provision and engaged a third party accounting firm to assist with the documentation of these enhanced processes and controls. Management is finalizing its design and documentation on quarterly process and controls and finalizing the design of annual controls. However, most controls over accounting for income taxes are annual controls, as such, the material weakness will not be considered remediated until after management has concluded through testing after year end that these controls are designed and operate effectively. Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, other than as set forth in the remediation plan described above. 40 Table of Contents 41 Table of Contents PART II—OTHER INFORMATION