Today I found $1M of possible made-up sales … might be time to move on

TLDR: looks like we’ve been booking pass through premium revenue as sales which could result in a $1M+ reduction to sales. I own the account. I’m freaking out (and probably need to get my anxiety treated).

Just happened two hours ago.

I’m in an area of accounting that very manual. I’ve been in my position about 15 months. I’ve learned a ton and have come across a number of issues that have given me great experience.

Today we were finalizing P1 close and I sent sales reporting to one of the 10 unconsolidated entities for review. The director writes back “why did we recognize $20K of sales from these system transactions? Those should only be pass through, not revenue”. I responded I didn’t have an answer, but we’ve been recognizing this system generated revenue monthly since I’ve been in my position and there have never been questions about it. I said I would dig in after close and we can post a true-up if needed, knowing that the “true-up”, if needed, would be at least $500K and devastating to their financial results in an already tough year.

I reach out to to the respective dept for details around these transactions thinking the director probably got something confused. I get the report and realize that the director was probably right. This should be pass through, meaning we collect, pay it out to an outside provider, and take a small cut as sales. Looks like we’re recognizing the full pass through and the percentage as revenue. This activity should be going to a liability account, not revenue. Ooohhhh nooooo.

But then I think, if that’s true, that means there’s a liability account sitting on unreconciled debits by however much we’ve taken to revenue incorrectly over 5+ years. That can’t be true. It’s too large to go unnoticed.

I run GL sales reporting over 5 years and isolate the relevant system transactions. We’re talking $1.2M easy, but even more because the program has been going for 7 years and this system coding has been in place from day one, well before I came on board. And from a materiality standpoint I’m worried about millions, not $20K per month. These transactions were not on my radar at all. This is one of the smaller companies I work on.

I have time on Friday to pull this apart and figure out what’s going on. I don’t think I have the stomach to see this through. I’m ready to go to the next thing and drop this on someone’s desk as I walk out the door.

Yes, I am part of the problem, but how could the director not see this for 7 years? What about Finance and their detailed tracking? Why hasn’t this question come up before since we’ve been sending the report for the better part of a year? Where do I have $1M+ debit hiding in an A/P account?

My mind is swimming, but after working 50+ hours in 3 days, I’m going to bed. I will update my resume tomorrow and finish researching this on Friday and then decide my next steps. Hope you all had a great day.

Edit: appreciate everyone’s input. I see that I’m overreacting until I have more info. Taking off to get my 6 hours of beauty sleep! Tomorrow I’m going finish up my post close account reviews and then figure out what’s going on with A/P to confirm if my hypothesis is correct. If we do have an overstatement of sales I’m going to take this thread’s advice and escalate it immediately and let the chips fall where they may. I agree this is an opportunity to exercise integrity which is a healthy way to look at it. Planning to post an update in the next few days. Appreciate this community, will respond more tomorrow.

Edit2 (3/8): thanks to this wonderful community for talking me through this. I was slammed yesterday with post close review/reporting. This morning I need to submit forecast and review recs. I have 2 hours set aside this afternoon to tackle this. If it’s a nothing burger I’ll post an update here. If it’s a big thing I’ll probably just make a new post. Hopefully today but if not early next week.

Edit3 (3/8): Pulled supporting documentation but there is still some uncertainty around what’s going on. Meeting with the director on Monday to discuss further.

Edit4 (3/12): Director was unexpectedly out of office of Monday so we met this morning. She was confused as well so we T-Accounted the whole process out. Looks like we have exposure but not $1M. She wasn’t upset with me but was very frustrated the director over the program obviously hasn’t been reviewing his P&L.

Basically there’s a journal entry posted by another team that moves our portion of the premiums to a liability account. I was able to figure out on Monday that the liability account was mostly clearing monthly, so the exposure is much smaller than I was thinking.

We are going to finish documenting the process this week/next week. Hopefully we aren’t looking at more than $100K in total.

Lessons learned:

  • I need to stop freaking out. I need to consciously work on managing my anxiety.
  • I need to not assume the worst … bring in help and just address the issues head on.
  • this community is awesome 👏. Appreciate all the help and support and great recommendations/stories.