FairPoint Communications 2009 Annual Report Download - page 54

Table of Contents

As a public reporting company, we are required to comply with the Sarbanes-Oxley Act and the related rules and regulations of the SEC, including
accelerated reporting requirements and expanded disclosures regarding evaluations of internal control systems. With respect to internal control over
financial reporting, standards established by the Public Company Accounting Oversight Board define a material weakness as a deficiency in internal
controls over financial reporting that results in a reasonable possibility that a material misstatement of a company's annual or interim financial statements
will not be prevented or detected on a timely basis. If our management identifies one or more material weaknesses in internal control over financial
reporting in the future in accordance with the annual assessments and quarterly evaluations required by the Sarbanes-Oxley Act, we will be unable to
assert that our internal controls are effective which could result in sanctions or investigation by regulatory authorities. In addition, any such material
weakness could result in material misstatements in our financial statements and cause investors to lose confidence in our reported financial information.
We note that we have identified material weaknesses in our internal controls over financial reporting which existed as of December 31, 2009,
which material weaknesses are discussed in greater detail in "Part II—Item 9A.Controls and Procedures" and "—We have identified material
weaknesses in our internal controls over financial reporting which existed as of December 31, 2009. If the steps we have taken to remedy these material
weaknesses are not successful or we otherwise fail to maintain an effective system of internal controls, such a failure could result in additional material
misstatements in our financial statements, prevent us from providing timely financial statements or meeting our reporting requirements both with the
SEC and under our debt obligations, cause investors to lose confidence in our reported financial information and have a negative effect on the trading
price of our common stock."


 


As discussed in "Part II—Item 9A.Controls and Procedures," in connection with the Restatement, we concluded that the following material
weaknesses in our internal controls over financial reporting existed as of December 31, 2009:
•Our information technology controls were not adequate. Adequate testing was not performed to ensure that certain revenue transactions
were properly accounted for and transferred from our billing system to our general ledger. Also, access to our information systems was
not appropriately restricted.
•Our management oversight and review procedures designed to monitor the accuracy of period-end accounting activities were ineffective.
Specifically, our account reconciliation processes were not adequate to properly identify and resolve discrepancies between our billing
system and our general ledger in a timely manner. In addition, control weaknesses existed relating to revenue, operating expenses,
accounts receivable, fixed assets and income taxes.
As a result of these material weaknesses, our management concluded that our disclosure controls were not effective as of December 31, 2009.
Effective in February 2010, our management has taken steps to remediate these issues. If the steps we have taken to remedy these material weaknesses
are not successful or we otherwise fail to maintain an effective system of internal controls, such a failure could
50