$CIG, $NOTV, $GATO, $AHCO
Filings from the week of May 17 - May 20.
$CIG filed its annual report late and was given an adverse opinion for its internal controls by EY. The DOJ executed a search warrant on NOTV’s Cumberland, Virginia facility. GATO delayed its 2021 annual report and Q1 2022 interim report due to identified “errors” while its Chief Administrative Officer resigned.
Top Red Flags
INOTIV INC ($NOTV) | 8-K | $342M - NOTV announced that the US Department of Justice (DOJ) executed a search and seizure warrant on the company’s Cumberland, Virginia facility. This occurred after several inspection reports by the US Department of Agriculture (USDA) reported findings of non-compliance. Furthermore, on May 19, 2022, a civil complaint was filed against NOTV by the DOJ alleging violations of the Animal Welfare Act at the Cumber, Virginia facility.
GATOS SILVER, INC. ($GATO) | 8-K & NT 10-Q | $213M - GATO filed a notification of late filing for its Q1 2022 interim report. The company still has not yet filed its 2021 annual report. The delay in its filings had been due to errors and indications of overestimation in its mineral resource and reserve reconciliation process, which was announced on January 25, 2022. In addition, on May 20, 2022, GATO announced the resignation of its Chief Administrative Officer, Adam Dubas, effective May 31, 2022. Mr. Dubas had been part of GATO, particularly in its accounting and finance department, for over 11 years.
ADAPTHEALTH CORP (#AHCO) | 8-K | $2.3B - AHCO announced the resignation of its Chief Accounting Officer, Frank Mullen, effective May 16, 2022. The company had reported ineffective controls for both Q1 2022 and fiscal year 2021.
ENERGY CO OF MINAS GERAIS ($CIG)
20-F | Market Cap: $5.6B
$CIG, a Brazilian energy company, filed its annual report 17 days later compared to last year and filed a notification of late filing (NT 20-F). [1]
The late filing came with an adverse opinion on its internal controls from its auditors, EY. [2]
In its annual report, CIG’s management also concluded that its internal controls were ineffective. Interestingly, CIG did not clearly state the reasons for its ineffective controls. The company only reported that there was a lack of design and execution in its internal controls over its business processes. For all we know, CIG’s ineffective controls could relate to anything. [3]
Furthermore, the CIG announced the change of its auditors from EY to KPMG starting in fiscal year 2022. [4] Brazilian public companies are required to rotate independent public accounting firms every five years. Perhaps this change of auditors will shape up CIG’s internal control environment.
CIG filed a notification of late filing (NT 20-F) on April 29, 2022. It filed its 20-F for fiscal year ending December 31, 2021 on May 17, 2022. Last year, CIG filed its 20-F for fiscal year ending December 31, 2020 on April 30, 2021.
“EY’s audit report dated May 16, 2022, on the effectiveness of our internal control over financial reporting as of December 31, 2021, expresses an adverse opinion related to a material weakness related to the lack of design and execution of relevant controls on business processes, to fully address the requirements of the COSO criteria.”
“Management evaluated the internal controls over financial reporting under the supervision of our CEO and Chief Financial and Investor Relations Officer, as of December 31, 2021 based on the criteria established in the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO (2013). Based on these criteria, despite the efforts and improvements that we made during the year, management has identified a material weakness related to the lack of design and execution of controls on business processes, to fully address the requirements of the COSO criteria. Our management concluded that, for the year ended December 31, 2021 the system of internal control was not effective.”
“Our executive board approved the change of Ernst & Young Auditores Independentes S.S., or EY, as independent registered public accounting firm and the engagement of KPMG Auditores Independentes Ltda., or KPMG, to serve as our new independent registered public accounting firm as of the second quarter of 2022 for the fiscal year ending December 31, 2022, and future fiscal years until a new auditor rotation is required.”
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