FairPoint Communications 2010 Annual Report Download - page 134

Table of Contents
Our management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2010 based upon criteria in Internal
Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation,
management determined that our internal control over financial reporting was not effective as of December 31, 2010 because the following material weaknesses
in internal control over financial reporting existed during 2010:
1. Our information technology controls were not adequate. Specifically, our change management processes were not consistently followed to ensure
all changes were appropriately authorized. In addition, access to our information systems was not appropriately restricted.
2. 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, project accounting controls were not adequate to ensure charges to capital projects were
appropriate or that projects were closed in a timely manner. Furthermore, procedures for the review of our income tax provision and supporting
schedules were not adequate to identify and correct errors in a timely manner.
Our management has initiated steps to address these issues and we believe the planned process improvements will adequately remediate the material
weaknesses described above and will strengthen our internal controls over financial reporting. We are committed to continuing to improve our internal control
processes and will continue to review our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over
financial reporting, we may identify additional measures to address these material weaknesses or determine to modify certain of the remediation procedures
described above. Our management, with the oversight of the audit committee of our board of directors, will continue to assess and take steps to enhance the
overall design and capability of our control environment in the future.
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A number of control improvements have been implemented during 2010 and the subsequent period prior to this report. These improvements were designed
to lessen the severity of the material weaknesses identified in prior periods and include:
 Improved controls over system access requests to ensure all requests are appropriately approved prior to processing.
 Enhanced password requirements related to the Oracle system to be in compliance with established guidelines.
 Improved reconciliation procedures over inventory, accounts payable, and payroll.
The following changes were implemented subsequent to year-end:
 Limited access to the privileged system account for our retail billing system.
 Revised user access responsibilities within the HR module of the Oracle system to eliminate segregation of duties issues in that module.
We continue to refine our processes to improve control and process effectiveness and efficiency. Such process refinements have been applied to virtually all
processes for the Northern New England operations, including information technology, order provisioning, customer billing, payment processing, credit and
collections, inventory management, accounts payable, payroll, human resource administration, tax and general ledger accounting.
With the exception of the foregoing, there have been no changes in our internal control over financial reporting during the year ended December 31, 2010 that
have materially affected or are reasonably likely to materially affect our internal control over financial reporting. We do note however that subsequent to the
year ended December 31, 2010, we implemented the remediation described above to partially address the material weaknesses in our internal control over
financial reporting.
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