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Item 9A. Controls and Procedures

2024-02-28 compared with 2023-02-28 · 52 added, 14 removed, 131 unchanged (34% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, have 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 Annual Report on Form 10-K.

Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s, or the SEC’s, rules and forms.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Annual Report on Form 10-K.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2022.

Based on such evaluation, our management has concluded our disclosure controls and procedures were not effective at a reasonable assurance level as of December 31, 2023, due to the material weaknesses in internal control over financial reporting described in Management’s Report on Internal Control Over Financial Reporting below.

Management's Report on Internal Control Over Financial Reporting

1 unchanged sentence

Under the supervision of and with the participation of our principal executive officer and principal financial officer, our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria established in “Internal Control - Integrated Framework” (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on that assessment, our management has concluded that our internal control over financial reporting was effective as of December 31, 2022.

Based on that assessment, our management has concluded that our internal control over financial reporting as of December 31, 2023 was not effective due to the material weaknesses identified below.

The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by Ernst & Young, LLP, an independent registered public accounting firm, as stated in their report which is included in Item 8 of this Annual Report on Form 10-K.

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.

In the period ended March 31, 2023, management identified a material weakness related to the accounting for our acquisition of Power Finance (the “Business Combination Material Weakness”), including a lack of sufficient precision in the performance of reviews supporting the purchase price allocation accounting, and a lack of timely oversight over third-party specialists and the reports they produced to support the accounting for the Power Finance acquisition.

The material weakness resulted in an error related to the allocation of merger consideration between purchase consideration and post-combination expense that was not detected on a timely basis.

The error was corrected by management in the Condensed Consolidated Financial Statements as of and for the three months ended March 31, 2023.

For the period ended December 31, 2023, management identified a material weakness related to information technology general controls (“ITGCs”) (the “ITGC Material Weakness” and together with the Business Combination Material Weakness, the “2023 Material Weaknesses”) in user access over certain information technology (“IT”) systems that support the Company’s revenue and related financial reporting processes.

As a result, the related process-level IT dependent manual controls, certain change management controls, and automated application controls for certain key IT systems were also deemed ineffective for the period ended December 31, 2023.

The 2023 Material Weaknesses did not result in any material misstatements in our Consolidated Financial Statements included in this Annual Report on Form 10-K.

Our management concluded that the Consolidated Financial Statements included in this Annual Report on Form 10-K, present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States.

Management’s Plan to Remediate the Material Weaknesses

Our management is committed to maintaining a strong internal control environment.

As it relates to the Business Combination Material Weakness, we have and will continue to take actions to enhance the design of our business combination controls with the level of precision required to operate them in an effective manner.

We will continue to enhance our management review control activities, including the review of inputs, assumptions and reports produced by third-party specialists supporting the purchase price allocation accounting and the application of technical accounting principles.

To remediate the ITGC Material Weakness, we are enhancing the design of our ITGCs over the IT systems that support the Company’s revenue and related financial reporting processes, including, (i) developing and implementing additional training and awareness addressing ITGCs and policies, including educating control owners concerning the principles and requirements of each control, with a focus on user access;

(ii) increasing the extent of oversight and verification checks included in operation of user access controls and processes;

(iii) deploying additional tools to support administration of user access;

and (iv) enhancing quarterly management reporting on the remediation measures to the audit committee of the board of directors.

Although we intend to complete the remediation process as promptly as possible, we will not be able to fully remediate the ITGC Material Weakness until these steps have been completed and the controls are operating effectively.

Changes in Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(d) and 15d-15(d) under the Exchange Act) during the fourth quarter of fiscal 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Except for the identification of the 2023 Material Weaknesses and related remediation efforts to date, there have been no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(d) and 15d-15(d) under the Exchange Act) during the fourth quarter of fiscal 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

4 unchanged sentences

Other Information

During our last fiscal quarter, on December 12, 2023, Martha Cummings , a member of our board of directors , adopted a “ Rule 10b5-1 trading arrangement ” as defined in Regulation S-K Item 408 providing for the sale from time to time of an aggregate of up to 340,241 shares of our Class A Common Stock.

The trading arrangement is intended to satisfy the affirmative defense in Rule 10b5-1(c).

The duration of the trading arrangement is until April 8, 2025 , or earlier if all transactions under the trading arrangement are completed, but in no case earlier than one year or later than two years from December 12, 2023.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

40 unchanged sentences

Form of Amended and Restated Indemnification Agreement between the Registrant and each of its directors and executive officers.

February 28, 2023

Amended and Restated 2011 Equity Incentive Plan, as amended, and forms of agreements thereunder.

12 unchanged sentences

Offer Letters between the Registrant and Simon Khalaf dated May 25, 2022 and January 26, 2023.

February 28, 2023

Offer Letter between the Registrant and Jason Gardner dated June 6, 2011.

5 unchanged sentences

Offer Letter between the Registrant and Randy Kern dated May 20, 2021.

Offer Letter between the Registrant and Philip (Tripp) Faix dated May 27, 2018.

Separation and Release Agreement between the Registrant and Philip (Tripp) Faix dated March 14, 2022.

10-Q 001-40465 10.1 May 11, 2022

10.15 Lease Agreement by and between the Registrant and MACH II 180 LLC, dated on or about March 1, 2016, as amended on November 8, 2017 and March 14, 2019.

S-1 333-256154 10.13 May 14, 2021

Master Services Agreement by and between the Registrant and Square, Inc., dated April 19, 2016, as amended on September 1, 2016, October 18, 2016, December 24, 2016, June 30, 2017, August 2, 2017, October 1, 2017, April 1, 2018, June 6, 2019, September 20, 2019, February 7, 2020, November 18, 2020, November 18, 2020, March 13, 2021, May 21, 2021, and January 27, 2022.

10-K 001-40465 10.20 March 11, 2022

Amended and Restated Prepaid Card Program Manager Agreement by and between the Registrant and Sutton Bank, dated April 1, 2016, as amended on December 31, 2017, September 1, 2018, August 1, 2020, and July 1, 2021.

10-K 001-40465 10.21 March 11, 2022

February 28, 2023

Lease Agreement by and between the Registrant and MACH II 180 LLC, dated on or about March 1, 2016, as amended on November 8, 2017 , March 14, 2019 , and November 7, 2019 .

001-40465 10.4

Amendment No.

19 to the Master Services Agreement by and between the Registrant and Square, Inc.

dated November 3, 2023.

A mendment No.

1 8 to the Master Services Agreement by and between the Registrant and Square, Inc.

dated September 26 , 2023 .

001-40465 10.1

November 8, 2023

A mendment No.

17 to the Master Services Agreement by and between the Registrant and Square Inc.

dated August 4 , 2023.

001-40465 10.1

August 11, 2023

001-40465 10.1

August 8, 2023

21.1* Subsidiaries of the Registrant.

7 unchanged sentences

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

C ompe nsation Recovery Policy .

Standstill and Release Agreement.

Inline XBRL Instance Document.

42 unchanged sentences

Godfrey Sullivan

/s/ Najuma Atkinson

Director February 28, 2024

Najuma Atkinson

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures