Hertz 2014 Annual Report Download - page 217

Table of Contents
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The control environment, which is the responsibility of senior management, helps set the tone of the organization (including a commitment towards
openness, honesty, integrity, and ethical behavior), influences the control consciousness of its officers and employees, and is an important
component affecting how the organization performs financial analysis, accounting, and financial reporting. A proper organizational tone can be
promoted through a variety of means, such as policies and codes of ethics, a commitment to hiring competent employees, the manner and
content of oral and written communications, and structures that promote and reward openness, strong internal controls, effective governance, and
ethical behavior.
As of December 31, 2014, we did not maintain an effective control environment primarily attributable to the following identified material
weaknesses:
• Our investigation found that an inconsistent and sometimes inappropriate tone at the top was present under the then existing
senior management that did not in certain instances result in adherence to accounting principles generally accepted in the United
States of America (“GAAP”) and Company accounting policies and procedures. In particular, our former Chief Executive Officer’s
management style and temperament created a pressurized operating environment at the Company, where challenging targets
were set and achieving those targets was a key performance expectation. There was in certain instances an inappropriate
emphasis on meeting internal budgets, business plans, and current estimates. Our former Chief Executive Officer further
encouraged employees to focus on potential business risks and opportunities, and on potential financial or operating performance
gaps, as well as ways of ameliorating potential risks or gaps, including through accounting reviews. This resulted in an
environment which in some instances may have led to inappropriate accounting decisions and the failure to disclose information
critical to an effective review of transactions and accounting entries, such as certain changes in accounting methodologies, to the
appropriate finance and accounting personnel or our Board, Audit Committee, or independent registered public accounting firm.
• We did not have a sufficient complement of personnel with an appropriate level of knowledge, experience, and training
commensurate with our financial reporting requirements to ensure proper selection and application of GAAP in certain
circumstances.
• We did not establish clear reporting structures, reporting lines, and decisional authority responsibilities in the organization.
• We did not design effective controls over the non-fleet procurement process, which was exacerbated by the lack of training of field
personnel as part of our Oracle ERP system implementation during 2013.
These material weaknesses in the control environment resulted in certain instances of inappropriate accounting decisions and inappropriate
changes in accounting methodology and contributed to the following additional material weaknesses:
• We did not design and maintain effective controls over certain accounting estimates. Specifically, we did not design and maintain
controls over the effective review of the models, assumptions, and data used in developing estimates or changes made to
assumptions and data, related to information technology expenditures; reserve estimates associated with allowances for
uncollectible amounts receivable for renter obligations related to damaged vehicles; and accrued unbilled revenue.
• We did not design and maintain effective controls over the review, approval, and documentation related to journal entries.
• We did not design and maintain effective controls over changes to our policies and procedures over GAAP, as well as the review,
approval, and documentation related to the application of GAAP.
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Source: HERTZ GLOBAL HOLDINGS INC, 10-K, July 16, 2015 Powered by Morningstar® Document Research℠
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