Datalex review uncovered ‘significant accounting irregularities’
Half-year results ended June 2018 were misstated, review finds
Travel software company Datalex said PwC agreed that the group’s revenue, earnings and profit for the half year ending June 30th, 2018, had been misstated. Photograph: iStock
Shares in travel software company Datalex fell a further 10.5 per cent on Thursday, bringing the decline in its share price so far this year close to 70 per cent, after a review into its finances identified “significant accounting irregularities” which have led it to overhaul its finance function and implement improved controls.
In a trading update on Wednesday, Datalex said PwC, which had been hired to conduct the review, agreed that the group’s revenue, earnings and profit for the half year ending June 30th, 2018, had been misstated.
Additionally, it found the company failed to correctly apply certain accounting standards and it therefore incorrectly recognised about $3.5 million (€3.11 million) of service revenues.
The review also concluded that about $2.9 million of other revenue was incorrectly recognised in the first half of 2018, of which about $700,000 was deemed not to be recoverable.
Ultimately, it was established that the “significant accounting irregularities during the period” were the “underlying cause for the group’s overstatement of revenues”.
PwC also found there to be “material weaknesses in the internal control environment” with the accounting process largely manual and dependent on individual judgment.
The review came after Datalex warned in January of an accounting issue which would ultimately lead it to a loss-making position for 2018. The Irish Times understands the problem was identified by chief financial officer Donál Rooney, who took up his position only a few weeks earlier on December 5th, as part of a year-end review.
Mr Rooney subsequently announced that he would move on from the company in April. It is understood Mr Rooney is waiting until April to see the company through its crisis-management efforts.
“The board will continue to investigate the failings leading to the issues, including with PwC and the external auditors, to ensure all appropriate lessons are learned and actions are taken accordingly.”
A number of urgent measures have already been taken including reorganisation of the finance function; the implementation of new accounting processes and the establishment of a new budgeting process for 2019.
Additionally, the process to identify and appoint a new chief financial officer is under way.
“The events of recent weeks have been distressing for the shareholders, directors and for all of the company’s stakeholders,” said Datalex chairman Paschal Taggart.
“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. We have said that 2019 will be a year of transition but the fundamentals of the business remain strong and we remain confident in Datalex’s future growth.”
Datalex raised about €3.86 million in March by selling additional shares to Dermot Desmond’s IIU investment company. The share sale brought IIU’s stake up to 29.9 per cent.
Additionally, Datalex entered into a €6.14 million loan agreement with an investment vehicle owned and controlled by Mr Desmond, conditional on shareholder approval. Both the proceeds of the share placing and the loan will be used to fund working capital, “and for general corporate purposes”, Datalex said.