Hertz 2014 Annual Report Download - page 9

Table of Contents
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• 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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We did not effectively design controls in response to the risks of material misstatement. This material weakness contributed to the following
additional material weaknesses:
• We did not design effective controls over certain business processes including our period-end financial reporting process. This
includes the identification and execution of controls over the preparation, analysis, and review of significant account
reconciliations and closing adjustments required to assess the appropriateness of certain account balances at period end.
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As of December 31, 2014, we did not maintain effective controls over information and communications. Specifically, we did not have an adequate
process for internally communicating information between the accounting department and other operating departments necessary to support the
proper functioning of internal controls. This material weakness led to misstatements in the capitalization and timing of depreciation of non-fleet
capital.
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We did not design and maintain effective monitoring controls related to the design and operational effectiveness of our internal controls.
Specifically, we did not maintain personnel and systems within the internal audit function that were sufficient to ensure the adequate monitoring of
control activities. This control deficiency resulted in some instances of the internal audit function’s failure to identify or sufficiently follow through
on the analysis of certain inappropriate accounting decisions and changes in accounting methodology.
Our incorrect accounting was caused by the foregoing control deficiencies, along with a complex mix of structural and environmental factors. One
of those factors was the tone set and pressures imposed by our former Chief Executive Officer, which were inappropriate in certain instances, and
may have been a factor influencing one or more employees to record an accounting entry now determined to be improper. Other factors affecting
the overall historic accounting environment and employees included the distraction caused by the multiple, conflicting business initiatives;
challenges related to managing complex, inefficient legacy systems; the lack of a sufficient complement of personnel with an appropriate level of
knowledge, experience, and training with GAAP; unclear reporting structures, reporting lines, and decisional authority in the organization; and other
matters. Taken together, these factors fostered a control environment and other control deficiencies that in some instances enabled inappropriate
accounting.
One or more of the foregoing control deficiencies contributed to the restatement of our financial statements for the years 2012 and 2013 and each
of the quarters of 2013, including the misstatements of direct operating expenses, accounts payable, accrued liabilities, allowance for doubtful
accounts, prepaid expenses and other assets,and non-fleet property and equipment and the related accumulated depreciation. Additionally, the
foregoing control deficiencies could result in material misstatements of the consolidated financial statements that would not be prevented or
detected. Accordingly, our management has determined that these control deficiencies constitute material weaknesses.
Management has assessed our internal control over financial reporting at December 31, 2014 and identified the material weaknesses described
above and, accordingly, has concluded that our internal control over financial reporting was not effective at December 31, 2014. In addition, our
Chief Executive Officer and Chief Financial Officer have evaluated
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Source: HERTZ GLOBAL HOLDINGS INC, 10-K, July 16, 2015 Powered by Morningstar® Document Research℠
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