Deloitte flags “material weakness” in Dailyhunt parent’s internal controls | Company Business News

Mumbai: Audit firm Deloitte has flagged lapses in Dailyhunt parent VerSe Innovation Pvt. Ltd’s operations, saying the company did not have appropriate internal controls over the evaluation and selection of suppliers, approval of purchase orders and invoices, and payments.

This could result in “material misstatement in company’s trade payables and expense account balances and preferential payments to suppliers including misappropriation of assets,” Deloitte said as part of VerSe’s consolidated financial statements for 2023-24, which was filed with the ministry of corporate affairs on Monday. 

The material weaknesses were identified in VerSe’s internal financial controls with reference to its standalone financial statements as at 31 March 2024, the audit firm said in its report. 

Deloitte, however, added that the material weaknesses mentioned “do not affect our opinion on the said standalone financial statements of the company” and that while it was issuing an “adverse opinion” on VerSe’s internal controls, its view on the consolidated financial statements was “true and fair”.

“Deloitte, VerSe Innovation’s long-term auditor, has issued a True and Fair view of our FY24 consolidated financial statements, providing a clean audit opinion on our financials. While Deloitte identified certain internal control weaknesses, their report has clearly confirmed that these do not impact their opinion on the consolidated financial statements, which is True and Fair. We are fully committed to strengthening our internal controls and remain confident in our plan to achieve break-even in the second half of this fiscal year,” a spokesperson for VerSe said.

Deloitte’s findings come days after Mint reported the resignation of VerSe’s group chief financial officer Sandip Basu even as the company was preparing for an initial public offering (IPO).

The audit firm also said VerSe did not have appropriate internal controls relating to the review of completeness of provision for expenses, which could result in misstatements in operating expenses and trade payables.

Deloitte added that VerSe “did not have appropriate internal controls for purchase, sale and inventory of virtual assets… which could potentially result in misstatement in company’s revenue from sale and cost of purchase of virtual assets and misappropriation of assets”.

Also, VerSe’s recognition of advertisement revenue from customers based on release orders or based on communications confirming advertisement campaigns were not operating effectively, Deloitte said. 

VerSe also did not have appropriate general controls over information technology systems relating to user access, program development, and change management procedures, according to the annexure report on internal controls, it added.

Also read | Dailyhunt parent VerSe is betting on AI, cost cuts for a turnaround after a tough FY24. Will it work?

‘Strengthening the processes’

In response to Deloitte’s filing, VerSe said it will strengthen its processes via a maker-checker checklist to ensure that provisions are created in a timely manner. The company added that it will also establish a process for ensuring monthly confirmation from all process owners and department heads on the completeness of the provisions being created.

“The company has strong change management controls in the form of LDAP for access control and Jira for change management. The company will further strengthen the processes related to the same,” VerSe said, adding that it is strengthening its internal controls to ensure that all advertising campaigns are run based on a release order or a well-documented contract with customers. 

Deloitte said that the material weaknesses identified and reported in determining the nature, timing and extent of tests applied in the audit for VerSe’s FY24 statements, and did not affect its opinion on the consolidated statements. 

Deloitte also said VerSe’s consolidated financial statements for 2023-24 reflected the impact of retrospective adjustments and consequential changes in the corresponding figures for the year ended 31 March 2023. 

As per VerSe’s FY23 audited results, the company had a total income of ₹1,809 crore. However, in its FY24 financial statement, VerSe adjusted its total income for FY23 to ₹1,356 crore. In FY24, its revenue fell to ₹1,261 crore. 

The statements also reflect an unsubstantiated claim of ₹35 crore arising from certain unexplained invoices included in the confirmation received from a supplier, which VerSe has not acknowledged as a trade payable, Deloitte said in its report. 

Deloitte clarified that its audited results for VerSe did not include the financial statements of eight subsidiaries, whose financial statements reflect total revenues of ₹793.5 crore, or about 63% of VerSe’s total revenue, for the year ended 31 March 2024. “The financial statements have been audited by other auditors whose reports have been furnished to us by the management,” Deloitte said.

Also read | After Magzter, Dailyhunt parent to pursue acquisitions more aggressively

Last month, co-founder Umang Bedi said VerSe expected more than a 75% revenue growth in FY25 aided by acquisitions and a recovering advertising market, and that the company would cut its cash burn or expenses by 30-40% with the help of artificial intelligence-driven innovation.

Over the past two years, VerSe, which operates Dailyhunt, Josh, NextVerSe AI, and VerSe Collab, has aggressively cut marketing expenses while integrating acquisitions into its operations. 

Among them, Valueleaf is expected to generate an additional $100 million in revenue in FY25 at a 10% Ebitda margin, while Magzter has helped Dailyhunt expand beyond an ad-driven model to include subscription-based revenue.

Over the past five years, VerSe has acquired social media app GolBol, photo-video sharing platform Vebbler, AI solutions provider Cognirel, and online news platform Local Play. The company has historically funded acquisitions through cash reserves.

VerSe last raised $805 million in April 2022 at a $5 billion valuation from investors including Goldman Sachs, Falcon Edge Capital, Sequoia Capital India, Omidyar Network India, and Matrix Partners.

Correction: An earlier version incorrectly stated that Deloitte had flagged lapses in VerSe’s internal controls that could have resulted in “material misstatements” in the company’s FY24 consolidated financial statement.