An internal investigation launched at the behest of the audit committee of USA Technologies, a cashless payments processor for vending machines, has found revenue recognition and other accounting problems. The company is working to remediate the problems and enhance internal controls and governance.
The probe found that for some transactions during the 2017 and 2018 fiscal years, the company had prematurely or inappropriately recognized revenue, and in some cases, the reported number of connections associated with the transactions. “The Audit Committee and its advisors proposed adjustments to previously reported revenues associated with certain of the transactions it reviewed,” the company said in a letter to shareholders. “On a net basis, the proposed aggregate reduction to previously reported revenues relating to these transactions is not expected to exceed $5.5 million.”
USA Technologies attributed the problems in part to sales pressure to hit certain targets. “Pressure to achieve sales targets gave rise to the premature and/or inappropriate recognition of revenues and reporting of connections associated with certain of the examined transactions, typically occurring at or near the end of financial reporting periods,” the company said in a filing with the Securities and Exchange Commission.
The SEC filing describes several other problems, including communication lapses and a failure by senior management to “timely or fully report certain employee complaints and concerns to the independent auditor and/or the Audit Committee.”
In a press release, USA Technologies outlined the steps it was taking to fix the problems and improve oversight. CFO Priyanka Singh had resigned effective Jan. 7. Other measures include:
- A reorganization of the Company’s senior management team.
- The addition of a Chief Operating Officer who will directly manage a number of operating functions.
- Enhancing internal compliance through the creation of a Compliance Committee of the Board of Directors, and the hiring of a Chief Compliance Officer who will report directly to the Committee.
- A splitting of the roles of Chairman and CEO, with Stephen P. Herbert continuing to serve as Chief Executive Officer and as a member of the Board of Directors, and Albin (Al) Moschner appointed Non-Executive Chairman.
- Authorization for the Nominating and Corporate Governance Committee to commence a search to identify two additional independent directors to join the Board.
The company is hoping to soon file its overdue annual report for fiscal 2018, ended last June 30, and quarterly report for fiscal 2019’s first three months ended Sept. 30.
The USA Technologies announcement is at least the second report of accounting problems recently after Hertz Holding Co. announced that it was settling charges of accounting flaws with the SEC for $16 million. 