How one individual’s dishonesty can undermine an entire business

Listed tech company WANdisco has confirmed that over $115 million (£93 million) worth of false sales have been identified in its accounts as CEO and CFO step down.

WANdisco is a sizeable cloud computing company, with dual headquarters in Sheffield and San Ramon, California. With a market capitalisation of around £890 million and a London Stock Exchange listing, things had been looking quite rosy for the tech firm. Founded in 2005, its software enables large-scale migration of data to the cloud. It employs more than 180 people and counts Google and Amazon among its customers.

But it hasn’t always been plain sailing for WANdisco. In September 2016, co-founder David Richards was briefly forced out of the business after a steep drop in its share price. He was reinstated a month later, causing the chair and other directors to leave.

Manual entries risk fraud

Last year, the company announced a string of lucrative deals with unidentified clients, causing its share price to rise 215% from January 2022 until March 2022, when shares were suspended. These announcements “may have materially misstated the company’s financial position”, WANdisco said. 

In April this year, it was announced that WANdisco would be investigated by the Financial Conduct Authority (FCA) over millions of pounds in false sales. The company confirmed it had identified over $115 million (£93 million) worth of false sales in the accounts. An independent investigation by FRP Advisory confirmed that the company had booked future sales of $15 million for 2022 which were false and that sales bookings of $115 million recorded in 2022 also did not exist. 

Following those announcements, Richards stepped down from his role as Chief Executive, while Erik Miller departed as Chief Financial Officer.

BDO is WANdisco’s statutory auditor and in the 2021 year-end independent auditor’s report, the firm “identified specific risks of fraud and error in respect of inappropriate revenue recognition given the nature of the group’s contracts with customers”. It warned that there was a “risk of manipulation of revenue through manual journal entries”.

FRP Advisory’s findings are consistent with BDO’s auditor report, noting falsified accounts can be traced back to one senior sales employee. FRP informed WANdisco in April that falsified purchase orders associated with the senior employee in question are “illegitimate,” while all other orders are legitimate. 

“We are pleased to receive these findings, which confirm the limits of the impact of the identified irregularities,” said Kenneth Lever, WANdisco’s Executive Chairman, said in a statement.

There are several lessons that can be taken from WANdisco’s difficulties. Among them is having sufficient processes and controls to help prevent manipulation of information.  

Revenue recognition is an important element, too. Recognising revenue that’s owed, but has not yet been received, can have the effect of improving a company’s balance sheet. However, there is a risk it can mask potential problems, which can grow until they are discovered later, as WANdisco’s case shows.

What would an AAT member do? 

• Ensure that processes are in place to prevent revenue data manipulation 

• Be strict about revenue recognition in accounts, to prevent an over-representation of money owed that has not yet been received 

AAT Comment offers news and opinion on the world of business and finance from the Association of Accounting Technicians.