Equity Bancshares in Kan. discloses material weakness tied to internal controls

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Equity Bancshares in Wichita, Kan., is addressing a material weakness in its controls over financial reporting.

The $4.1 billion-asset company disclosed in its quarterly filing that the issue is tied to the reconciliation process for a portion of corporate accounts to the general ledger.

Since April, those reconciliations were not performed correctly or timely. The review of the process did not operate effectively, leading senior management to believe the reconciliations had been handled appropriately.

The issue was discovered about four weeks ago, Andrew Liesch, an analyst at Sandler O'Neill, wrote in a note to clients. Specifically, he said Equity's staff had not been performing the task correctly and that three officers overseeing the staff "inappropriately approved the reconciliations."

Those officers were fired and management began a process to determine the magnitude of the deficiency, Liesch added. Equity has engaged its external auditor to assist in the process.

Equity, in its filing, characterized the issue as an operating deficiency rather than a design deficiency, adding that its internal control requires reconciliation of all corporate accounts to its general ledger, along with a review of those actions.

Equity said that it does not expect to recognize a material charge to its financial results and that it has not identified any material misstatements to previously issued financial statements. Still, the deficiencies “create a reasonable possibility that a material misstatement … will not be prevented or detected on a timely basis,” the filing said.

The company has begun a reconciliation process, implemented new supervision and review processes and assigned knowledgeable and trained personnel to handle its corporate accounts. Liesch said the company moved the reconciliation function to its accounting department from its deposit operations.

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