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June 03, 2005 at 08:00 PM
A Southern insurer says it has discovered material weaknesses in the effectiveness of its internal controls.[@@]
The multiline insurer, Vesta Insurance Group Inc., Birmingham, Ala., also says it will be trying to increase its financial flexibility by taking a number of steps, including selling a life insurance unit, American Founders Life, to Sagicor Financial Group, St. Michael, Barbados, for $58 million in cash.
Vesta postponed the release of its financial reports for the third quarter of 2004 after disclosing that it had discovered an accounting error. The company estimated in November 2004 that the error would reduce shareholders’ equity by $1.8 million. Vesta said it believed the error had occurred before 2003.
“In the process of pinpointing the period and nature of the previously disclosed error, the company discovered additional errors,” Vesta now says in a statement.
The company now believes that correcting all accounting errors discovered to date will cut shareholders’ equity by $11.6 million, Vesta says.
One accounting error involves the “recording of realized gains on assets attributable to a life reinsurance agreement,” Vesta says.
Vesta says it believes the company has problems with internal controls that are important enough to be violations of Section 404 of the Sarbanes-Oxley Act of 2002.
“The presence of these material weaknesses will cause management to conclude that internal controls are ineffective and the external auditors to issue an adverse opinion on the effectiveness of internal controls,” Vesta says.
