Tech Data 2014 Annual Report Download - page 72

Table of Contents
The following material weaknesses identified during the course of procedures performed in connection with the restatement of our financial
statements filed on February 5, 2014 with our Annual Report on Form 10-K for the fiscal year ended January 31, 2013 remain outstanding at
January 31, 2014:
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,
2014. This inadequate control environment could prevent the timely detection of a circumvention of internal controls by local personnel
within these subsidiaries, including internal controls over manual journal entries and balance sheet account reconciliations. In addition,
as of January 31, 2014 the Company was in the process of integrating its UK-based SDG operations ("SDG UK"), which were acquired
in November 2012, into its primary U.K. operating subsidiary, and therefore SDG UK is likewise considered to have an ineffective
control environment. This integration was completed during the first quarter of fiscal 2015.
Inadequate controls over manual journal entries in Europe and in two subsidiaries in Latin America
We did not maintain 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 2014. As a result of this control deficiency, improper manual journal entries may not be detected on a
timely basis.
Inadequate account reconciliation procedures in Europe over certain aspects of vendor accounting
We did not maintain effective account reconciliation procedures in Europe over certain aspects of vendor accounting. As a result of this
control deficiency, we may not be able to detect certain errors on a timely basis, particularly those 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 potential circumvention or override of controls 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 potential circumvention of internal control over financial reporting. In
addition, there was a lack of awareness or willingness of some staff in the three European subsidiaries referred to above to contact the
Company’s independent hotline or to take other actions that could help identify potential errors on a timely basis.
The effectiveness of internal control over financial reporting as of January 31, 2014, 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
The Company is evaluating or implementing various remedial actions to address the material weaknesses described above. These actions include
the following:
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Certain personnel are no longer employed by the Company.
• The Audit Committee, Board and executives have increased communication to all employees regarding the ethical values of the
Company, requirement to comply with laws, the Code of Conduct and the Company's accounting policies.
•
The Company has engaged external experts to perform the internal audit function and to assist with the implementation of specific fraud
detection procedures.
• The accounting organization is adding resources to address standardization, training and competencies related to the use of accounting
systems and to enhance all accounting personnel's understanding of accounting policy.
•
The Company has implemented changes to its compensation programs to better motivate accurate financial reporting and compliance.
• The Company is implementing changes in various processes, including: tools to document, support and review manual journal entries;
new financial statement review and audit programs; and centralization of various control and finance processes.