Datalex review identifies 'significant accounting irregularities'
Dublin-based travel software firm Datalex has said that an independent review of its finances found “significant accounting irregularities” during the first half of 2018.
This led to an overstatement of its revenues.
A failure to apply IFRS 15 accounting standards appropriately, as well as complex income was blamed.
The board was not aware of the matter until January this year.
A statement from Datalex today said the review has led to the company implementing a “transformative change programme” which has included the implementation of a number of “urgent measures” to enhance internal controls.
This follows a statement in January from the group in which it said it expected to report a loss in adjusted earnings before interest, tax, depreciation and amortisation (ebitda) for the full year, because of a shortfall in services revenue relating to a contract with a customer.
It said the potential mis-statement of half-year results had been because of "accelerated recognition of revenue" from that contract.
The group today said the board had appointed PwC to conduct a review of the accounting issues relating to revenue recognition referred to in the January trading update, and the related sequence of events, and to identify any similar revenue recognition issues.
Among PwC’s findings were that the group’s recognition of services revenue for the half year ended 30 June 2018 was not in line with the group’s accounting policy and was “materially” overstated.
The review identified “significant accounting irregularities” during the period as the underlying cause for the group’s overstatement of revenues, noting “material weaknesses” in the company’s internal control environment, with the company’s accounting processes in this area having been largely manual and dependent on individual judgement, and not subject to internal audit oversight.
In addition, the review found that the group incorrectly recognised approximately $3.5m of services revenue associated with the deployment in its results for the half year ended 30 June 2018 (this was corrected at 31 December 2018 and reflected in the group’s 2018 guidance included in the January trading update).
The review identified approximately $2.9m of other services and platform revenue that was incorrectly recognised in H1 2018, of which around $700,000 has been determined not to be recoverable, with the balance being revenue that will be recognised in H2 2018 or in the 2019 financial year. This was also corrected in December 2018.
Datalex will restate its results for the six month period to 30 June 2018 and present the restated results along with its results for the six month period to 30 June 2019 in the second half of 2019.
Paschal Taggart, chairman of Datalex, said: "The events of recent weeks have been distressing for the shareholders, directors and for all of the company's stakeholders."
"The review has confirmed accounting irregularities and material historical internal system and control failures. These are now being addressed and the board is committed to implementing all necessary improvements."
Mr Taggart added that the group remains "confident" in Datalex’s future growth.