FairPoint Communications 2010 Annual Report Download - page 42

Table of Contents
 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.
 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.
As a result of these material weaknesses, our management concluded that our disclosure controls were not effective as of December 31, 2010. Our
management has initiated steps to remediate these issues. If the remediation is not successful or we otherwise fail to maintain an effective system of internal
controls, such a failure could result in material misstatements in our financial statements, prevent us from providing timely financial statements or prevent us
from 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 market price of our Common Stock.
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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, prevent us from providing timely financial statements or meeting our reporting requirements both with the SEC and
under our debt obligations 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, 2010, which material
weaknesses are discussed in greater detail in “Part II—Item 9A. Controls and Procedures”.
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We sponsor pension and post-retirement healthcare plans for certain employees. During the year ended December 31, 2010, we experienced actual gains on
pension plan assets totaling approximately 11.2%. Since the actuarial value of plan assets is dependent on the value of the assets held by each plan, a
significant decline in the market value of such assets could have a detrimental impact on our pension plans and could result in us making additional
contributions to these plans, as required under the Employee Retirement Income Security Act of 1974, as amended. Furthermore, if the third party trustee who
holds these plan assets were to become insolvent, access to the plan assets could be limited, and we could be required to pay participant benefits from our
assets. Such
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