We developed policies and procedures for treatment and recognition of changes to renewable energy facilities’ account balances, including process level review controls over validation of existence of assets, accumulated depreciation and depreciation, accretion and amortization expense.
Material Weaknesses in Internal Control
While we believe we have improved our organizational capabilities, the full impact of these changes had not been realized by December 31, 2018 and certain remediation activities are continuing to take place in 2019. Process-level and management review controls over certain manual financial reporting processes were not effective. Additionally, although the Company implemented revenue control enhancements in the third and fourth quarters of 2018, there was insufficient time to demonstrate full remediation of monthly and quarterly controls by December 31, 2018.
As of December 31, 2018, management concluded that we had the following material weaknesses in our internal control over financial reporting:
The Company’s risk assessment process failed to fully address certain risks of material misstatements of the financial statements and as a result, the Company did not have effective review controls to mitigate those risks of material misstatements of significant accounts, including risks related to the completeness and accuracy of information derived from IT systems and end-user computing spreadsheets used in the performance of those controls.
The Company did not have sufficient resources to have effective controls over the application of GAAP and accounting measurements related to significant accounts, transactions and related financial statement disclosures.
The Company did not have effective controls over the completeness, existence, and accuracy of revenues and deferred revenue and the completeness, existence, accuracy and valuation of accounts receivable.
Due to the existence of the above material weaknesses, our management has concluded that our internal control over financial reporting was not effective as of December 31, 2018. These material weaknesses create a reasonable possibility that a material misstatement to the consolidated financial statements will not be prevented or detected on a timely basis.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2018 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which appears herein.
We continue to strengthen our internal control over financial reporting and are committed to ensuring that such controls are designed and operating effectively. We are implementing process and control improvements to address the above material weaknesses as follows:
We began the process of implementing additional consolidation, treasury, and lease accounting related financial systems, each of which is expected to increase the efficiency of processing transactions, produce accurate and timely information in order to address various operational and compliance needs, and reduce our reliance on end-user computing spreadsheets.
We are continuing to enhance revenue controls that were implemented in 2017 and 2018, as well as exploring opportunities to automate system journals and new applications to support invoicing and the sourcing of revenue data to reduce the reliance on manual controls.
We are enhancing the review controls over the application of GAAP and accounting measurements for significant accounts, transactions and related financial statement disclosures by adding incremental resources and providing specialized/technical training to strengthen our skills to support our controllership function. We are also implementing additional controls and enhancing existing controls that support management’s assertions with respect to the completeness, accuracy and validity of complex accounting measurements on a timely basis.
Management has made significant progress with the Company’s remediation plans and will continue to take measures in 2019 to remediate these material weaknesses. In addition, under the direction of the Audit Committee of the Board of Directors, management will continue to review and make necessary changes to the overall design of the Company’s internal control environment, as well as to refine policies and procedures to improve the overall effectiveness of internal control over financial reporting of the Company.