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Productive Business Solutions Limited, PBS, a Xerox distributor and technology service provider, saw its capital being slashed by a quarter, following accounting irregularities at its Costa Rica subsidiary.
It led to job losses and management changes in Costa Rica, one of the 24 locations in which Productive Business operates.
The company’s audited 2023 results – published this week after months-long delays that resulted in PBS and its preference shares being suspended from trading since July 2 – reflected capital of US$77.6 million at year ending December 2023, compared to US$105.9 million in 2022 before the restatements by its auditor PricewaterhouseCoopers. Relative to the restated figure, however, its capital improved from US$75 million.
The audit on Costa Rica revealed journal entries with insufficient documentation, affecting key financial line items such as contract assets, inventories, long-term receivables, and trade receivables. Additionally, the investigation identified unrecorded liabilities, further complicating the company’s financial standing, stated the auditor. In response, PBS management initiated a “forensic investigation” with the help of an independent accounting firm.
“As a result of the above, management terminated the employment of certain personnel within PBS Costa Rica, and a temporary management team from within the group was put in place to oversee the accounting and financial reporting processes at PBS Costa Rica,” PwC stated.
The irregularities did not affect the profitability of PBS, Chairman Paul ‘PB’ Scott said.
The reduced capital related to several items, he added, “including impacts on deferred tax, timing differences and the irregularities mentioned, as well as additional professional fees related to the closing of the audit”, while directing the Financial Gleaner to his statement published in the company’s newly released annual report.
The chairman’s statement to shareholders did not go into details.
“The issues were complex, and I will not attempt to go into detail in this letter. However, in summary, the transfer to shared services in this particular entity left open our company to actions that led to these misstatements,” Scott stated in the annual report.
Productive Business’ net assets for FY2022 were restated from US$236.3 million to US$157 million, while long-term liabilities of US$130.5 million were adjusted to US$81.6 million, and total equity from US$105.9 million to US$75.3 million.
Profit in 2023 amounted to US$8.08 million, compared to restated profit of US$2.86 million for 2022. Profit for 2022 was initially estimated at US$8.47 million prior to the restatement.
Although the PBS accounts were uploaded on the Jamaica Stock Exchange on Tuesday, and its annual report on Wednesday, the stock was still suspended during the trading day on Thursday.
Scott indicated that the delays in the filing of the FY2023 audited accounts was related to assessments of other locations where Productive Business operates to ensure there were no other irregularities.
“As a learning organisation, we have implemented significant changes to personnel and governance to enhance the rigour in which processes are implemented and accounted for. It is incredibly difficult to eliminate all risks, but there is no doubt that with focus and intensity on the processes, the risk of this reoccurring will be greatly reduced,” Scott said.
Productive Business reported revenue of US$327 million in 2023, eight per cent of which was contributed by Costa Rica, down from 10 per cent contribution in 2022.
“The accounting irregularities had a material effect on the year ended 31 December 2022, and as at 1 January 2022 for the cumulative impact of the items related to periods prior to that date,” PwC said.
Key adjustments included the write-off of certain contract assets, while the trade receivables were validated to confirm their existence and accuracy.
Productive Business continued to file its interim reports throughout the suspension, the latest of which was released this week. For the nine-month period, January-September 2024, the company recorded a profit of US$3.2 million, down from US$5.5 million in the year-prior period.
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