Captaris Inc.
Captaris Inc.
(per [Corporate Website])
Captaris is a leading provider of Business Information Delivery solutions that integrate, process and automate the flow of messages, data and documents. Captaris produces a suite of proven products and services, in partnership with leading enterprise technology companies, delivered through a global distribution network.
Captaris has installed over 80,000 systems in 44 countries, with 93 of the Fortune 100 using the company's award-winning products and services to reduce costs and increase the performance of critical business information investments.
Captaris is headquartered in Bellevue, Wash., and has main offices in Tucson, Ariz., Portland, Ore., Englewood, Colo., Calgary, Canada, and European headquarters in Nieuwegein, Netherlands. In addition, Captaris has sales and support offices in the United Kingdom, Germany, Hong Kong, Australia and Dubai. The company was founded in 1982 and is publicly traded on the NASDAQ National Market under the symbol CAPA.
Captaris Inc. and Sarbanes Oxley Compliance: A Case of the Hard-Hitting SOX
On March 4th, 2005 Captaris, Inc. filed an 8-K to explain weaknesses in its internal control over financial reporting. These weaknesses were considered “material weaknesses” for the year ending December 31st, 2004, and would cause a delay in filing its Annual Report on form 10-K. In the case of Captaris, one of the problems highlighted related to deficiencies of general computer controls, which created a more than remote likelihood of producing an error having a material effect on the financial statements. IT computer controls related to transactions and financial statement account balances are generally subject to a higher level of scrutiny because they entail processing a high volume of transactions. Errors in automated systems have a higher risk of creating material errors. Auditors are particularly concerned with this type of systemic material weaknesses because of the significant effect it may have on financial statements. Captaris has since filed its 10-K annual report on March 31, 2005 (amended on May 2, 2005). Its initial 10-K report failed to include managements’ assessment of internal control effectiveness. However, a description of the three types of the material weaknesses discovered was described. Management’s completed assessment, along with the required reports and attestations, appeared in the May 2nd 10-K amendment. Four types of material weaknesses are outlined in an amendment to Item 9a (Controls and Procedures). These items are described as follows:
- "Management has determined that a material weakness exists in that our culture did not establish and promote an environment that results in effective internal control over financial reporting and the generation of reliable financial statements. This material weakness led to additional material weaknesses, as discussed below…"
- "Management has determined that a material weakness exists in that we do not have an adequate entity level risk assessment process to identify and consider the implications of relevant risks…"
- "Management has determined that a material weakness also exists in our information systems, in that the information systems do not appropriately address the requirements necessary for preparation of timely and accurate financial reports and do not sufficiently support the finance function, resulting in adjustments and reclassifications to our consolidated financial statements as of and for the year ended December 31, 2004. The underlying data reporting structure utilized in the financial reporting application does not adequately address our reporting requirements. The financial application and related information applications and systems are not sufficiently robust and comprehensive, resulting in a lack of automation in the financial close and related financial reporting processes."
- "Management has also determined that a lack of sufficient and specialized technical accounting personnel is a material weakness in our internal control over financial reporting…"
Captaris follows these paragraphs with a detailed plan to remedy the material weaknesses with specific and continuing improvements. In regards to IT weaknesses, Captaris plans to “conduct a strategic assessment of required financial and operating information requirements and information systems to adequately support the finance function and operations (10-K/A).” Revised data architecture for the financial system application and related systems will be completed by third quarter of 2005. In addition, “new plans are underway to implement new applications or replace existing applications and to streamline and automate manual business processes (10-K/A).”
Although the costs of such improvements are significant, reliable financial statements upon which investors can trust is a key to continuing operations for companies such as Captaris. Captaris shares have experience a 23% drop in value, from $4.75 on March 3, 2005 (one day before making its initial internal control disclosure), to $3.68 on May 25, 2005.