Home Solutions: Disclosure of Material Weaknesses

| About: Home Solutions (HSOA)

Talk about the Hostile React-o-Meter spinning out of control: When it comes to my column on Home Solutions (HSOA) of America, the Hostile React-o-Meter is spinning outta control! Emails are so vile, it makes you want to dig deeper.

In the video below, as in my column, I use Home Solutions as an example of why Sarbanes-Oxley shouldn't be watered down for small companies. I was focusing on something that is totally un-Sarbox related: The company's exaggerations in a news release.

But there's actually something not in the video or column about Home Solutions that's very Sarbanes Oxley-related, especially when it comes to the much-contested section 404. Without 404, as Glass Lewis' Lynn Turner - former SEC chief accountant of the SEC - points out, the auditors for Home Solutions would never have had to disclose certain material weaknesses, as it does in its 10-K, such as:

  • The lack of proper segregation of duties for accounting applications, which means a material misstatement of financial statements "would not be prevented or detected."
  • No job descriptions or annual employee reviews. Furthermore, the company says it "did not appropriately communicate information related to its code of conduct, employee handbook and fraud policy."
  • Management didn't approve several customer contracts, review the cash receipts log or verify that cash receipts are posted to the correct account.
  • The company's largest vendor statement didn't agree to the general ledger accounts payable balance.
  • There's more, but I won't bore you. If you're interested, it's all there in the auditor's letter and opinion in the 10-K on Edgar.

    HSOA 1-yr chart

    hsoa chart