March 19, 2013
This is in response to the recommendation to require an Internal Audit function for all COmpnaies listed on the NASDAQ. (Reference File Number SR–Phlx–2013–18)
Since the inception of Sarbanes Oxley, our external Audit fees have increase from $137K in 2003 to over $1 million today. Over half of this increase can be attributed to the cost of activities related to the auditing of our internal controls with the other half associated with the overall growth in the business. During this time period, the Company has not had any Material Weakneeses and only minimal numbers of Significant Deficeincies. In our latest year-end, we had no reported Weaknesses at any level as a result of the external audit of our controls. We have been able to accomplish this through integrating our controls and testing into the organization and have done so without a dedicated internal audit function. The Company's Audit Committee reviews our internal control program and its results each quarter and annually with the external auditors as part of the year-end audit work.
In our case, the addition of a dedicated internal audit function, whether it is in house or outsourced, will not add any value to the process or for our stockholders.
If the Commission elects to institute this requirement, I would recommend it consider developing thresholds for the requirement. The thresholds should take into account revenue level and the complexity of the corporate legal entity structure. The larger the company the more complex its geographical structure typically is and this results in a higher level of oversight needed to manage internal controls.
While the proposal discusses the competitiveness of the Exchanges, the Commission needs to consider the competitive impacts to the listing companies as well in determining the right level of balance in mandating how companies manage the internal audit function versus the cost.