Lax Internal Controls Exposed by Deloitte in VerSe Innovation Audit
Audit reveals oversight issues at VerSe Innovation, as highlighted by Deloitte.
A blunt assessment from Deloitte Haskins & Sells has revealed significant shortcomings in VerSe Innovation's internal financial controls for their FY24, as per data gathered using business intelligence platform Tofler. The reveal comes just weeks after the group CFO, Sandip Basu, stepped down citing health issues; VerSe is currently on the hunt for his replacement.
Deloitte, VerSe's long-term auditor, shed light on the following areas of concern, which, if not addressed, could lead to inaccuracies in financial reporting and increased risks of misappropriation and misstatements:
1. Supplier management
- Weak internal controls in supplier evaluation led to potential misstatements in trade payables and expense accounts.
- Preferential payments could be made due to gaps in purchase order approvals, invoice processing, and verification of service receipts.
2. Financial expense provisions
Ineffective review processes for expense provisions may result in incorrect operational expenses and trade payables.
3. Revenue recognition
- Lapses in ensuring advertisement campaigns were supported by customer-approved release orders could lead to misstated revenues and trade receivables.
- Ineffective controls caused a restatement of revenues in FY23 due to adjustments under Ind-AS.
4. IT control weaknesses
- Inadequate IT general controls, with issues related to user access, program development, change management, and insufficient audit logs.
- Deficiencies in the control of virtual assets, including inadequate oversight of customer acceptance, pricing, and user access for transfer of digital assets.
Concerns also arose regarding an unsubstantiated claim of ₹35 crore from unexplained invoices submitted by a supplier. In response, VerSe acknowledged these findings but emphasized that they do not impact the company's consolidated financial statements. They, however, remain committed to strengthening internal controls, with a goal to achieve break-even in the second half of the ongoing fiscal year.
- The financial industry has confirmed the significant shortcomings found in VerSe Innovation's internal financial controls for FY24, as per the audit conducted by Deloitte, their long-term auditor.
- One area of concern exposed by the audit is the weak internal controls in supplier evaluation, which could lead to potential misstatements in trade payables and expense accounts.
- The audit also identified ineffective review processes for financial expense provisions, which may result in incorrect operational expenses and trade payables.
- In addition, the report highlighted lapses in revenue recognition, including the lack of controls to ensure advertisement campaigns were supported by customer-approved release orders, potentially leading to misstated revenues and trade receivables.
- Concerningly, the audit also pointed out IT control weaknesses and deficiencies in the control of virtual assets, raising questions about user access, program development, change management, and insufficient audit logs in FY24.
