Material Weakness Remediation

The Challenge

The client received a Material Weakness (MW) during their first audit as a private company. The client company was carved out of a large organization, and the business unit was immaterial to the overall financials and therefore not previously in scope for the Sarbanes Oxley (SOX) opinion. The spinoff left the organization in need to stand up processes and systems throughout the organization. Shortly after, the carved-out organization also decided to go public via a SPAC.

In addition to the change in ownership, the client struggled with headcount across the organization during this time due to high turnover, and the organization was in the middle of standing up a shared service center based in India. The client lacked standardized global processes and requisite knowledge among team members to perform Internal Controls over Financial Reporting (ICFR) inclusive of Information Technology General Controls (ITGCs).

The Solution

The client chose Eliassen Group (EG) to address this challenge due to our history of supporting clients with the remediation of Material Weaknesses and experience in process improvement and change management. EG designed and implemented Business Process controls and ITGCs around the client’s in-scope systems. EG re-designed business processes, understood root causes, and placed multiple controls into operation to mitigate the risk of control failure around ICFR. Once the control design was completed, EG led several training sessions and helped the control owner execute a sample of each control with the appropriate level of documentation to pass the rigor internal and external audit. Part of the training included EG sending people to the newly-formed shared service center to provide training on new systems, processes, and controls.

As part of process improvement and control enhancements, EG assisted in the implementation of different tools, including but not limited to, Blackline to support the client’s need for consistent and standardized reconciliations and management oversight of the overall close process. Additionally, after designing controls, EG identified and baselined all key reports that were leveraged by the internal and external audit teams.

The Result

The work performed by the EG at the client helped the client with a clean audit opinion for Internal Controls over Financial Reporting in their first year as a public company. In subsequent years, the client has been able to maintain their SOX program and operate without the assistance of outside resources.