Tech Data 2013 Annual Report Download - page 102

Table of Contents
A material weakness is a deficiency, or 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.
We have identified the following material weaknesses:
Inadequate control environment in a United Kingdom (“UK”) subsidiary and two other European subsidiaries
We did not maintain an effective control environment in our primary operating subsidiary in the UK and two other European subsidiaries,
which collectively comprise approximately 13% of our worldwide consolidated revenue during the year ended January 31, 2013. This
inadequate control environment failed to prevent the circumvention of internal controls by local personnel within these subsidiaries.
Within each of these subsidiaries, controls over manual journal entries were circumvented by local personnel and key balance sheet
account reconciliation controls normally in place to detect such errors were overridden. The circumvention of these controls affected
virtually all accounts in the restated Consolidated Balance Sheet discussed in Note 2 of Notes to Consolidated Financial Statements. In two
of these subsidiaries, a significant portion of the restatement adjustments correct errors related to vendor accounting. In one of these
subsidiaries, the majority of the restatement adjustments correct errors related to the improper deferral of net foreign currency exchange
losses. Additionally, the absence of controls to detect improper hedging transactions contributed to the misstatement of the financial
statements.
In addition, in the UK subsidiary, the inadequate control environment was exacerbated by insufficient understanding and training
concerning the Company’s financial accounting systems. This lack of understanding created inefficiencies in the UK finance organization
which resulted in certain internal controls not being performed effectively.
Inadequate controls over manual journal entries in Europe and in two subsidiaries in Latin America
We lacked effective procedures in Europe for ensuring review, approval, documentation and record retention related to manual journal
entries. We also had a similar weakness in two subsidiaries in Latin America representing approximately 1% of our consolidated net sales
in fiscal 2013.
As a result of this control deficiency, we failed to detect on a timely basis the improper manual journal entries in the three subsidiaries
referred to above that represent the most significant portion of the errors corrected by the restatement.
Inadequate account reconciliation procedures in Europe over certain aspects of vendor accounting
We lacked effective account reconciliation procedures in Europe over certain aspects of vendor accounting. As a result of this control
deficiency, we failed to detect errors within the three subsidiaries referred to above along with similar errors in other European subsidiaries
primarily related to the improper timing of recognition in the income statement of certain vendor incentives, product discounts/price
variances, promotions and other vendor credits.
Inadequate anti-fraud program controls and monitoring
We did not maintain effective controls to prevent or detect the circumvention or override of controls that occurred in certain European
subsidiaries. Specifically, the monitoring controls, including internal audit and review of the effectiveness of key balance sheet
reconciliations, were not sufficient to prevent or detect the circumvention of internal control over financial reporting. In addition, there was
a lack of awareness or willingness of some staff with knowledge of the improper accounting in the three subsidiaries referred to above to
contact the Company’s independent hotline or to take other actions that could have helped identify the errors on a more timely basis.
As a result of this control deficiency, we failed to detect on a timely basis the improper manual journal entries, including those in the three
subsidiaries referred to above that represent the most significant portion of the errors corrected by the restatement.
The effectiveness of internal control over financial reporting as of January 31, 2013, has been audited by Ernst & Young LLP, the independent
registered certified public accounting firm, who also audited the Company's consolidated financial statements, as stated in their report included
herein.
Remedial actions
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