Auditors of GoMechanic had raised several red flags in accounting: Report
New Delhi, January 20, 2023
Auditors of car service platform GoMechanic had raised "red flags" in the company's accounting standards for the investors, a report in Mint said. In 2020, PwC India, the auditor of the company's holding entity Targetone Innovations Pvt Ltd, had issed a "qualified opinion" indicating that it could not provide a clean opinion of the accounts.
The firm did not maintain inventory records for receipts and issuance of goods directly received by the customers, the Mint report said, citing documents from the audit.
In FY21 and FY22, the company's auditor BSR and Co., an affiliate of KPMG International, did not provide any qualification. In FY22, it issued a disclaimer of opinion stating that the "company has not established its internal financial controls with reference to financial statements".
The company's co-founder Amit Bhasin on Wednesday admitted to errors in financial reporting, following which a forensic audit has been ordered and a business restructuring undertaken which will see 70 per cent of the 1,000-odd workforce being laid off.
Nearly two years after it raised a mammoth $42 million in funding, it emerged that GoMechanic cooked its financial books by inflating revenues.
In a post on LinkedIn, Bhasin said founders got "carried away" in their quest for exploring opportunities to grow.
"Our passion to survive the intrinsic challenges of this sector, and manage capital, took the better of us and we made errors in judgment as we followed growth at all costs, including in regard to financial reporting, which we deeply regret," he wrote without giving details of the misreporting.
A forensic audit has been ordered to gauge the magnitude of the financial misreporting.
Besides the retrenchments, the startup has reportedly asked the remaining employees to work without pay for the next three months.
"We take full responsibility for this current situation and unanimously have decided to restructure the business while we look for capital solutions," Bhasin wrote.
"This restructuring is going to be painful and we will, unfortunately, need to let go of approx. 70 per cent of the workforce. In addition, a third-party firm will be conducting an audit of the business."
Stating that while the situation is far from anything the founders could have ever imagined, GoMechanic is working on a plan which would be most viable under the circumstances.
Bhasin along with Kushal Karwa, Nitin Rana and Rishabh Karwa founded GoMechanic in 2016 as an automobile repair startup, connecting car owners with repair service providers in their area. It also sells original spare parts and accessories for automobiles on its website.
The startup is backed by marquee investors including Sequoia Capital, Tiger Global, Orios Venture Partners and Chiratae Ventures. In June 2021, it raised $42 million in Series C funding from Tiger Global, Sequoia Capital India, and others.
"The investors of GoMechanic were recently made aware by the company's founders of the serious inaccuracies in the company's financial reporting. We are deeply distressed by the fact that the founders knowingly misstated facts, including but not limited to inflation of revenue, which the founders have acknowledged," a statement by major investors said.
The investors, it said, have jointly appointed a third-party firm to investigate the matter in detail.
"We will be working together to determine the next steps for the company," it added.
[The Business Standard]