Ek tha multibagger! Auditor raises red flags on this high-flier IT firm

Deloitte Haskins & Sells found several transactions which highlighted a probable fraud.

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Deloitte also highlighted that multiple addresses were being used in various communications with certain customers in invoices, websites and on the cheques received.
Shares of 8K Miles delivered investors more than 7,000 per cent return between January 2011-December 2017. Ever since, the stock has gone downhill, having tanked over 95 per cent till November 1, 2019.

And now, its auditor has raised several red flags on suspected accounting fraud in the small IT firm. The stock didn’t trade on BSE on Monday. It closed at Rs 43.50 on Nov 1, 2019.

While auditing the standalone and consolidated financial statements of the company for the year ended March 31, 2019, auditor Deloitte Haskins & Sells found several transactions which highlighted a probable fraud in the company.


The auditor found several inconsistencies between declarations provided by the directors and information available in the public forum, which demonstrated existence of probable related party transactions which may not have been disclosed previously.

It said there were many instances where the company was not able to provide particulars of the services rendered and acknowledged by the customer.

The company submitted its financial results for the year ended March 2019 to stock exchanges BSE and NSE on Sunday. 8K Miles reported 99.49 per cent year-on-year (YoY) rise in net profit at Rs 973.23 lakh for the year ended March, 2019, against Rs 487.84 lakh reported for the previous year. However, net profit declined 27 per cent YoY to Rs 153.52 lakh for the quarter against Rs 210.59 lakh reported for the year-ago period.
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Deloitte also highlighted that multiple addresses were being used in various communications with certain customers in invoices, websites and on the cheques received.

“Some of the communication addresses turned out to be residential addresses of certain employees or its subsidiaries, which impacted our ability to establish the authenticity of the customer,” Deloitte said.

The auditing agency also found differences in name spellings of the common signatories of certain vendor.

“Several instances of various inconsistencies were noted during our audit of the books of account of certain foreign subsidiaries in association with our audit of the consolidated financial statements of the company,” Deloitte said.
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In October, BSE passed an order suspending trading in the shares of 8K Miles along with 9 other companies, which included Binani Industries and Dion Global Solutions, from November 4 for not complying with the listing norms pertaining to submission of quarterly financial results, among others.

“Subsequent to our reporting of such matters to the audit committee vide our letter dated July 15, 2019, the audit committee in its meeting held on July 18, 2019 appointed an external firm of chartered accountants to carry out an investigation. We are informed that as on date, the investigation report of the external firm of chartered accountants has not been received by the company and, hence, the same has not been made available to us,” Deloitte said in its report.
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In another development, the company informed the bourses that RS Ramani and Gurumurthi Jayaraman have submitted their resignation as directors of the company.
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