TechnologyAccounting SoftwareFraud squad called into e-district.net

Fraud squad called into e-district.net

The fraud squad is investigating revenue figures at online games company e-district.net.

The fraud squad is investigating revenue figures at online games company e-district.net.

Preliminary enquiries by Cap Gemini Ernst & Young (CGEY) and PricewaterhouseCoopers (PwC) found a “substantial overstatement of registered users, page impressions and revenues”, said a company statement.

Based solely on information from sales agencies, revenue for the 23 months to 30 June 2000 was approximately £130,000, not £1.8m as stated in reports.

In a statement, e-district.net’s public relations agency said: “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 that supported the data, “both written and electronic, appears to have been manipulated”.

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

CGEY found that historic data pertaining to registered users and page impressions was only available from February 2000. It also found that data in the company’s systems did not reconcile with the published traffic details, but was unable to verify the data’s accuracy.

It appears that registered traffic fell dramatically from 150 million page impressions to nine million between May and June 2000.

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

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.

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