March 27, 2013
On behalf of MGP Ingredients, Inc. (MGPI), I am commenting on proposed rule 34-69030 (SR-NASDAQ-2013-032) requiring all listed companies to establish and maintain an internal audit function. MGPI management is adamantly against this proposal for the following reasons:
1.) Currently, we incur approximately $2 million annually to comply with public company rules and requirements, including the staffing of our finance function, audit fees, legal fees, Board of Directors fees, SEC reporting staff and filing fees, etc. These costs are significant to us as a newly-classified smaller reporting company and would be significant to us if we were still classified an accelerated filer. We believe this proposed rule change would add another financial burden on us without sufficient evidence that improved controls and/or other added value over the requirements we have today would be the result.
2.) As a smaller reporting company, we are exempt from SOX 404(b) requirements. The purpose of this exemption was to ease the financial burden of complying with the Sarbanes Oxley Act for smaller public companies. We believe that this proposed rule change effectively defeats the purpose of the exemption.
3.) MGPI employs a limited in-house internal audit function and also contracts with an out-sourced internal audit firm that reports directly to our Audit Committee. So, as the proposed rule requires, we do have an internal audit function, but not a dedicated one. We are already required to comply with a myriad of audit requirements from agencies and boards like the SEC and the PCAOB. We believe that if we are able to successfully comply with current requirements, meet the expectations of our Audit Committee and of our external auditing firm without a dedicated internal audit function, we should be allowed to do so.
4.) Additionally, we have concern around the proposed rule's "Purpose." The release states, "The purpose of the rule is to ensure that listed companies have a mechanism in place to regularly review and assess their system of internal control and, thereby, to identify any weaknesses and develop appropriate remedial measures. The rule is also intended to make sure that the listed companys management and audit committee are provided with ongoing information about risk management processes and the system of internal control." MGPI believes the proposed purpose to be too broad and overreaching, too intolerant for desired Audit Committee direction and duplicative of current audit processes and scope.
For the above-listed reasons, we believe the proposed rule requiring NASDAQ-listed companies to establish and maintain an internal audit function should be withdrawn.