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Innophos Holdings (IPHS)
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IPHS » Topics » Remediation Plan for the Material Weaknesses

This excerpt taken from the IPHS 10-Q filed Dec 15, 2006.

Remediation Plan for the Material Weaknesses

Since these control deficiencies were identified, management has:

 

  •   Improved its controls concerning customer rebate contract documentation and accounting.

 

  •   Continued to improve its training of staff, monitoring of tax law changes, and its reporting controls concerning income tax reporting and account valuation.

 

  •   Developed and implemented a plan for, and continues to make progress in, upgrading its financial systems to improve the controls related to access of financial information, the design of its information systems, and segregation of the Company’s initiation, authorization and recording duties, including the processing of non-standard journal entries.

 

  •   Engaged external IT consultants to review security access and segregation of duties in our IT systems. Mexico review completed in the 3rd quarter of 2006. Implementing action plans to remediate.

 

  •   Improved its monitoring, communications, and controls related to subsidiary accounts.

 

  •   Improved the procedures and controls for the preparation and posting of manual journal entries, including quarterly testing of manual journal entries.

 

  •   Performed a staffing analysis of, and added permanent, contract, and consulting staff to its financial organization. However, the Company is continuing to develop financial capabilities and has recognized that additional accounting staff is needed. In response, the staffing plan is being implemented.

 

  •   Established an internal audit function.

 

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  •   Received Audit Committee approval for the internal audit plan for 2007 and outside resources for Sarbanes-Oxley Act compliance to assist with the documentation of the system of internal control over key processes, assess their design, remediate any deficiencies identified and test the design of our processes.

In addition, the Company, with the help of internal control consultants, has developed and continues to implement specific action plans to enhance the reliability and effectiveness of our internal control over financial reporting. These actions include:

 

  •   Strengthening functional reporting lines between the US corporate office and our foreign subsidiaries.

 

  •   Strengthening our procurement and payment procedures.

 

  •   Engaging an outside service to establish a confidential compliance hotline.

 

  •   Upgrading and making improvements in our use of information systems.

 

  •   Implementing the internal audit plan.

As noted, Management will need to enhance its reporting processes and implement additional financial and management controls. Efforts are underway to accomplish these objectives.

 

  •   In January 2006, Innophos implemented a new enterprise resource planning system in the Mexico operations.

 

  •   In July 2006, Innophos implemented an upgraded financial system, including a new general ledger system in the United States and Canada.

While the remediation measures have improved the design effectiveness of internal controls over financial reporting, certain of the newly designed controls either were not operating effectively as of September 30, 2006 or had not operated for a sufficient period of time prior to that date to demonstrate operating effectiveness. This included the areas related to income taxes, access to information systems and data and cut-off of certain accounts.

For the year ending December 31, 2007, pursuant to Section 404 of the Sarbanes-Oxley Act, management will be required to deliver a report that assesses the effectiveness of our internal controls over financial reporting and our auditors may be required to deliver an attestation report on management’s assessment of, and operating effectiveness of, internal controls over financial reporting. We have a substantial effort ahead of us to implement appropriate processes, document the system of internal control over key processes, assess their design, remediate any deficiencies identified and test their functionality.

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