The parent company of California-based Guild Mortgage reported on Monday it has identified material weaknesses in its internal control over financial reporting, according to its annual 10K document filed with the U.S. Securities and Exchange Commission (SEC).
The nonbank lender said it did not have sufficient staff with the experience to design and operate its controls over financial reporting. In addition, the company did not perform an effective risk assessment, including the risk of fraud.
“This resulted in ineffective general information technology controls over user access and change management within the general ledger and loan systems,” the company said.
KPMG, Guild’s independent accounting firm, indicated the problem in its report about the company’s consolidated financial statements.
So far, the gap in control risks has not resulted in misstatements to the financial statements, but it could in the future, Guild said in the 10K report, which is required for publicly traded companies.
Guild’s top executives mentioned the gaps in its control risks during a conference call with analysts on March 10. They said there’s been no impact on the financial statements: controls were in place but not appropriately documented.
Guild said it has decided to adopt some measures to address the problem.
Among these measures are hiring additional finance, accounting, and IT staff; enhancing risk assessment; designing and implementing controls to formalize roles and responsibilities; and regularly reporting the remediation plan to the audit committee.
However, the company said they “cannot assure you that the measures we have taken to date and may take in the future, will be sufficient to remediate the control deficiencies that led to the material weaknesses in internal control over financial reporting or that they will prevent or avoid potential future material weaknesses.”
The document also mentioned that management excluded Residential Mortgage Services (RMS), acquired in July, from the assessment of the internal control effectiveness. Maine-headquartered retail lender RMS represented 5% of the assets and 7% of the consolidated net revenue last year.
Guild reported on Thursday $36.8 billion in origination volume in 2021, up 5% from 2020. The company’s net income declined to $283.8 million in 2021 from $370.6 million in 2020, a 23% decrease.
