TechnologyAccounting SoftwareE-district.net calls in Fraud Squad

E-district.net calls in Fraud Squad

Results from preliminary investigations into revenue figures at e-district.net have led the online video games company to contact the Metropolitan Police's Fraud Squad.

Results from preliminary investigations into revenue figures at e-district.net have led the online video games company to contact the Metropolitan Police’s Fraud Squad.

Early findings from the probe have found a “substantial overstatement of registered users, page impressions and revenues”, according to a company statement.

Investigators from Cap Gemini Ernst & Young (CGEY) and PricewaterhouseCoopers (PwC) found that, based solely on information from sales agencies, revenues for the 23 months to 30 June 2000 were approximately £130,000, not the £1.8m stated in the company’s reports.

In a statement, e-district.net’s public relations agency stated: “The investigations have also identified evidence of collusion within the company connected with the overstatement of registered users.”

According to a spokesperson for e-district.net, inflated revenues were allegedly drawn up by manipulating data in reports on business conducted with sales agencies. Documentation supporting the data “both written and electronic, appears to have been manipulated”, according to the statement.

The preliminary investigation suggests that money was deposited into the company’s accounts from sources other than the sales agencies. It appears that approximately £1m was received in this way between November 1999 and February 2001.

CGEY, which is investigating the overstated registered users and page impressions, found that historic data pertaining to these was only available from February 2000. It also found that the data within the company’s systems does not reconcile with the published traffic details, but was not able to verify the accuracy of the data.

It appears that there was also a dramatic fall in registered traffic – from 150 million page impressions to nine million – between May and June of 2000, for reasons yet to be investigated.

Currently, the company has a cash balance of over £12m and a cash burn rate of £200,000 per month, according to the statement. The company’s revenues for the six months to December 2000 are expected to be “negligible”.

E-district.net’s shares were suspended on 20 February after the company announced it had found accounting irregularities in its financial reports. Following the discovery, the board suspended chief executive Steve Laitman and then fired him, announcing that it would sue him for damages.

PwC, the company’s auditor, would not comment other than to confirm it was involved in the investigation.

Also published on accountancyage.co.uk

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