3. Metodología y Desarrollo
3.2. Desarrollo por iteraciones del sistema
3.2.6. Desarrollo de la sexta iteración del sistema
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based on that evaluation, our management, including our Chief Executive Officer and our Chief Financial Officer, has identified a material weakness in our internal control over financial reporting. As a result of this material weakness, management has concluded that, as of the end of the period covered by this Annual Report on Form 10-K, our internal control over financial reporting was not effective.
Changes in Internal Control Over Financial Reporting
The Company acquired On Assignment’s Allied Healthcare Staffing division on December 2, 2013. Due to the timing of the acquisition and as allowed under SEC guidance, management’s assessment of and conclusion regarding the design and effectiveness of internal control over financial reporting excluded the internal control over financial reporting of the acquired business, which is relevant to the Company’s 2013 consolidated financial statements as of and for the year ended December 31, 2013.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control system 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. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in the Internal Control-Integrated Framework (1992 framework). As permitted, our management’s assessment of and conclusion on the effectiveness of our internal controls did not include the internal controls of On Assignment, Inc.’s Allied Healthcare Staffing division, because it was acquired by us during the fourth quarter of 2013. The assets of the acquisition constituted $27.6 million and $26.7 million of total and net assets, respectively, as of December 31, 2013 and $3.4 million and $0.1 million of revenue and net loss, respectively, for the year ended December 31, 2013 as a result of the closing of the acquisition on December 2, 2013. Based on our assessment and those criteria,
management has identified the following material weakness in our internal control over financial reporting:
We have determined that there is a material weakness in our controls of non-routine accounting processes. This material weakness did not result in any misstatements of the Company’s annual or interim consolidated financial statements but did result in two auditor initiated adjustments during the 2013 annual audit. As part of the annual testing of goodwill and other intangible assets, the Company relied only on its internal forecast to calculate hypothetical royalty rates to value its trade names and failed to corroborate a change in royalty rate with current arms-length market transactions. Absent such market evidence, the Company reverted to its historical royalty rates for which market support existed and recorded a $6.4 million non-cash trade name impairment charge prior to its fourth quarter press release on earnings. Also during the year-end audit, the Company determined that a valuation allowance was required on its deferred tax assets but miscalculated the amount of the valuation allowance. When calculating the non-cash valuation allowance, the Company incorrectly netted deferred tax liabilities related to indefinite lived intangible assets (such as goodwill) against the deferred tax assets. This resulted in recording an incremental $17.4 million valuation allowance after the fourth quarter press release was issued but prior to filing of this Annual Report on Form 10-K.
As a result of this material weakness, management has concluded that, as of the end of the period covered by this Annual Report on Form 10-K, our internal control over financial reporting was not effective. The effectiveness of our internal control over financial reporting as of December 31, 2013, has been audited by Ernst & Young LLP, an independent registered certified public accounting firm, as stated in their attestation report included in this Annual Report on Form 10-K.
Remediation of the Material Weakness in Internal Control over Financial Reporting
To remediate the material weakness, management with the oversight of our Audit Committee is going to design and implement controls around the following:
• Increasing its reliance on third party experts for the review of non-routine accounting transactions.
• Expanding the Company’s complement of qualified accounting staff and implementing process improvements that permit more effective and efficient management of the accounting and financial reporting processes, including those related to non-routine transactions.
Notwithstanding the identified material weakness, management believes that the consolidated financial statements included in this Annual Report on Form 10-K fairly represent, in all material respects, our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.
Report of Independent Registered Public Accounting Firm
We have audited Cross Country Healthcare, Inc.’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO criteria). Cross Country Healthcare, Inc.’s management is responsible for
maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process 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. A 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 financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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.
As indicated in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of On Assignment, Inc.’s Allied Healthcare Staffing division, which is included in the 2013 consolidated financial statements of Cross Country Healthcare, Inc. and constituted $27.6 million and $26.7 million of total and net assets,
respectively, as of December 31, 2013 and $3.4 million and $0.1 million of revenues and net loss, respectively, for the year then ended. Our audit of internal control over financial reporting of Cross Country Healthcare, Inc. also did not include an
evaluation of the internal control over financial reporting of On Assignment, Inc.’s Allied Healthcare Staffing division.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. Management has identified a material weakness in controls related to the Company’s review of significant non- routine accounting matters as it relates to the fair value estimation of its indefinite-lived intangible assets and the valuation allowance on its deferred tax assets. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2013 and 2012 and the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2013. This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2013 financial statements, and this report does not affect our report dated March 17, 2014, which expressed an unqualified opinion on those financial statements.
In our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2013, based on the COSO criteria.
/s/ Ernst & Young LLP Certified Public Accountants Boca Raton, Florida
Item 9B. Other Information. None.
PART III