In Lottery.com’s long-delayed Q2 2022 financial report the business outlined a number of issues concerning the effectiveness of its controls and procedures in reporting its financial resulting.
Specifically, the company noted a number of “deficiencies” in the design and operation of these procedures. The online lottery portal noted a “lack of sufficient number of personnel” with the appropriate knowledge and experience in accounting for complex transactions.
Lottery.com also said that its policies and procedures relating to the review, supervision and monitoring of its accounting and reporting functions “were either not designed or in place or not operating effectively”.
The company said this resulted in its inability to “complete the timely closing of financial books” at the quarter or fiscal year, as well as incomplete segregation of duties in certain types of transactions and processes.
As such, the business said that it did not design and maintain sufficient procedures and controls relating from non-routine transactions, such as the sale of LotteryLink Credits.
This led to the “overstatement” of $52.1m revenue for the year ending 31 December 2021. In July 2022, the overstatement of revenue led to the resignation of chief revenue officer Matthew Clemenson.
Lottery.com implements remedial steps
In response to these failings, the company said that it has implemented a number of remedial steps to improve these processes and remedy its material weaknesses in this regard.
According to the business, this has included adding personnel with sufficient accounting knowledge, as well as adopting “a more rigorous” period-end review process for financial reporting.
Additionally, Lottery.com said that it has adopted improved accounting processes and now clearly documents the segregation of duties for its transactions.
“The implementation of our remediation will be ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles,” said the business.
“We may also conclude that additional measures may be required to remediate the material weaknesses in our internal control over financial reporting.
Ongoing class action lawsuit
In the face of these weaknesses the business is engaged with a number of ongoing lawsuits. In August 2022, the business was served with a class action law suit on behalf of investors against Lottery.com and former high-ranking employees.
The suit alleges that the business made “materially false or misleading statements”, as well as failing to disclose that the company lacked adequate internal accounting controls.
“As a result of defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the company’s securities, plaintiff and other class members have suffered significant losses and damages,” read the suit.
Since the Lottery.com filed a motion to have the lawsuit dismissed in April, the class action is expected to file their opposition to this – which would trigger the company’s deadline to reply to this no later than the 20 June.
Lottery.com experiences large reduction in revenue
Revenue for the three-month period ending 30 June 2022 stood at $1.89m, an 81% decline from the $9.88m the business recorded in the same time the previous year.
Personnel costs increased 370% to $9.51m, while professional fees increased 4215% to $1.22m.
The business’s net loss rose 1159% to $15.45m for the three-month period.
Original article: https://igamingbusiness.com/legal-compliance/lottery-com-liability-accounting-non-compliance/
