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Internal Controls – Not Just for Large Public Companies

When cases of fraud or bankruptcy are reported in the news, it is often a multi-billion dollar company that is involved, which generates significant media attention – FTX being a recent example. But what if this happens with a shell company such as a Special Purpose Acquisition Company (SPAC) or a private company? It likely won’t make the front pages. The SEC recently filed and settled charges against a public SPAC for internal controls, reporting, and recordkeeping violations. These reported violations allowed the former chief financial officer of the SPAC to misappropriate approximately $1.2 million from the company’s operating bank account.

Things to Consider

Internal controls are not just important and required for large public companies. Having formalized processes and controls in place is paramount to running an effective and efficient company. Good governance starts with experienced management and experts supporting the different business functions, tone at the top, formal policies and procedures, risk management, and board oversight. Critical internal controls can include areas as simple as ensuring proper segregation of duties and board-level oversight of management, as well as controls over the initiation, approval, recording, and reporting of business transactions, including related party transactions. For SPACs or other companies with limited personnel or operating activities, addressing critical risk areas can go a long way in maintaining effective controls.

As such, it is imperative that you choose financial reporting and risk advisory experts who understand financial reporting and internal controls requirements.

How Centri Can Help

Our dedicated, skilled professionals collaborate with SPAC companies and sponsor entities, target operating companies, auditors, underwriters, and legal counsel in understanding accounting and reporting needs for SPAC filings, related business combinations, and subsequent SEC reporting and internal controls considerations and planning. This allows us to find solutions for your unique accounting needs. If you have questions or need assistance in establishing an internal control or risk management framework, please contact Centri to learn how we can help.

Contact one of Centri’s SPAC or Risk Advisory experts for additional information.

Source: https://www.sec.gov/news/press-release/2023-36

Derek Kearns

Partner | SEC, Financial Reporting & SPAC Practice Leader | CPA

Derek is a Partner at Centri Business Consulting and the leader of the firm’s SEC, Financial Reporting, & SPAC Practice. He has more than 23 years of accounting experience in both public and private industries. View Derek Kearns's Full Bio