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Sims Metal Management Releases Special Committee Findings On UK Investigation; Goodwill Impairment

3. Identification of root causes of the write-down

The Committee's investigations have revealed that the primary root cause for breakdowns in the Company's control environment can be attributed to the failure to adequately supervise operations (including inventories), responsibly safeguard assets, and failure to maintain adequate controls over financial reporting relating to inventory. The UK operations did not properly implement well established Group internal controls for the rapidly expanding SRS business in the UK. Internal audit failed to perform end-to-end walk-throughs involving transactions associated with new plants and technologies in the UK. Additional control failures identified include, failure to test inventory adjustments, failure to identify and halt accumulations of excessive levels of inventories, and failure to successfully integrate IT systems in the UK. The Committee has also identified allegations of potential fraud in the UK, which are being further investigated.

4. Implementation of corrective actions including organisational matters

The Company will immediately implement its standard set of controls over inventories and integrate IT systems to improve the UK control environment. Additionally, standard operating procedures will be evaluated and supplemented.

The Committee's investigation, while substantially complete, now shifts focus to organisational decisions involving staff and management, and also to improving the control environment including IT systems. The Committee has considered, and will implement, changes that will expand the internal audit function and broaden the scope of internal audit work. The Group CEO and CFO are tasked with the responsibility for implementing changes in people, culture, and controls, in the UK. The Committee will see that these matters are addressed with urgency during the second half of Fiscal 2013.

Appendix B:

Goodwill and other intangible asset impairment charges

The Company advised the market on 21 January 2013 that a triggering event had occurred which would necessitate an impairment assessment of goodwill as at 31 December 2012. The triggering event was that the results for the period were significantly less than budget. The impairment is ascribed to the timing and value of past acquisitions.

Stock quotes in this article: SMS 

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