First Data 2012 Annual Report Download - page 128

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
E
valuation of Disclosure Controls and Procedures.
The Company has evaluated, under the supervision of the Company’s Chief Executive Officer and the Chief Financial Officer,
the effectiveness of disclosure controls and procedures as of December 31, 2012. This is done in order to ensure that information the
Company is required to disclose in reports that are filed or submitted under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in SEC rules and forms.
Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure
controls and procedures were not effective as of December 31, 2012, due to a material weakness, described below in Management’s
Report on Internal Control over Financial Reporting.
Notwithstanding the material weakness discussed below, management has concluded that the consolidated financial statements
included in this form 10-K present fairly, in all material aspects, the Company’s financial position, results of operations and cash
flows for the periods presented in conformity with accounting principles generally accepted in the United States.
M
anagemen
t
’s Report on Internal Control over Financial Reporting.
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting
as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles.
The Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect
on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All control
systems have inherent limitations so that no evaluation of controls can provide absolute assurance that all control issues are detected.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012,
based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) Framework to
Internal Control Environment.
Management has concluded that it did not design and maintain effective controls relating to the accounting and reporting for
income taxes and also concluded that this is a material weakness in internal control over financial reporting as of December 31, 2012.
Specifically, the controls in place relating to the establishment and measurement of valuation allowances against deferred tax assets
were not properly designed to provide reasonable assurance that the Company’s income tax benefit and deferred tax assets and
liabilities would be properly recorded and disclosed in the financial statements. The Company has an insufficient number of personnel
with appropriate knowledge, experience or training in accounting for income taxes. The existing organizational structure resulted in
incomplete or inadequate oversight and review of complex issues, calculations and disclosures. Although the amount of tax related
adjustments recorded to the Company’s financial statements have been immaterial, the absence of sufficient controls creates the risk
that a material error would not be prevented or detected in a timely manner.
Based on management’s evaluation under the COSO framework, management concluded that the Company’s internal controls
over financial reporting were not effective as of December 31, 2012.
Ernst & Young LLP, an independent registered public accounting firm, has issued an attestation report on the Company’s
internal control over financial reporting which is contained below.
R
emediation of Material Weakness
Management has initiated a remediation plan which includes the following actions:
• The Tax Department is in the process of being restructured, key resources have been refocused on the most critical areas and
additional technical resources are being added.
• Processes, procedures and controls over income tax accounting will be reviewed and modified to ensure greater oversight
and transparency.
• Additional external resources will be engaged to ensure that all concepts and interpretations around income tax accounting
have been appropriately considered.
Changes in Internal Control over Financial Reporting
Except for the material weakness in internal control over financial reporting related to the accounting and reporting for income
taxes there were no changes in the Company’s internal control over financial reporting identified in connection with the above
evaluation that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the
Company’s internal control over financial reporting.