WEX fined $350K over ICFR weaknesses

Deficiencies in WEX’s internal control over financial reporting (ICFR) led to accounting errors at the company’s former Brazilian subsidiary, WEX Brazil, according to the SEC. An independent auditor cited numerous weaknesses in ICFR at WEX Brazil in 2016 and 2017 that led to the company revising its financial statements for fiscal years 2016 and 2017 and interim reporting periods for fiscal years 2017 and 2018 to correct the errors.

“As a result of these revisions, fiscal year 2016 GAAP net income was reduced from $60.6 million to $23.5 million (61.2 percent),” the SEC stated in its order, which further detailed net income revisions for each quarter for fiscal year 2017.

WEX Brazil’s revenue was overstated by approximately $7 million in 2016 and $5.8 million in 2017, the agency added.

At the end of fiscal year 2018, WEX hired a law firm to investigate potential causes of the errors at WEX Brazil.

“The investigation concluded that former WEX Brazil employees had potentially misappropriated between $7.6 million to $9.1 million,” according to the SEC. “There was evidence that one employee set up fictitious vendors and, by using those vendors and a credit card terminal at home, stole approximately $5 million. … The other potential misappropriations involved the misuse of company benefit cards and credit cards.”

The investigation concluded there were errors in WEX Brazil’s financial statements back to fiscal year 2013 totaling approximately $85.5 million, mostly relating to the overstatement of unbilled receivables, according to the SEC.

WEX acquired a 51 percent controlling interest in what then became WEX Brazil (formerly UNIK S.A.) in August 2012. The company acquired the remaining 49 percent interest in August 2015. WEX sold WEX Brazil in September 2020.

Weaknesses identified: In its fiscal year 2018 annual report, WEX management noted the following areas of ICFR deficiency at WEX Brazil:

• An insufficient number of personnel with an appropriate level of knowledge of the company’s processing platforms and overall financial reporting process.
• An insufficient number of personnel appropriately qualified to perform control activities.
• Reconciliation of balance sheet accounts not being prepared consistently.
• Lack of precision in review controls to identify all potential errors.
• Lack of oversight and approval of journal entries.
• Lack of sufficient monitoring activities in place to ensure effective corporate oversight and monitoring of control activities.

“WEX stated in its fiscal year 2019 Form 10-K filed with the Commission that the company had remediated the material weaknesses in Brazil and its independent auditor issued an unqualified opinion over WEX’s ICFR,” the SEC stated.

WEX was found to have violated the reporting, internal controls, and books and records provisions of the Securities Exchange Act of 1934. The company agreed to cease and desist from future violations in addition to paying the civil penalty.

WEX, based in Portland, Maine, did not respond to a request for comment.