USA Technologies reorganizes management team after audit committee probe
USA Technologies issued an open letter to shareholders in connection with the internal investigation conducted by the Audit Committee of the Company's Board of Directors and actions being taken to strengthen the Company's management team and enhance internal controls and governance. The company has also filed a Form 8-K with the Securities and Exchange Commission which reports further details on the principal findings of the internal investigation and the actions the Board of Directors and management are implementing as a result of the investigation. The letter read, in part: "The Audit Committee, with the assistance of independent legal and forensic accounting advisors, conducted a thorough internal investigation relating to certain of the Company's contractual arrangements. The investigation is substantially complete and I want to provide you certain of the Audit Committee's findings and recommendations, as well as actions the Company is taking to strengthen the management team, improve controls and coordination within our Company, and enhance USA Technologies' governance...The Audit Committee made a number of findings, including that, for certain transactions which had been principally entered into during fiscal years 2017 and 2018, the Company had prematurely or inappropriately recognized revenue, and in some cases, the reported number of connections associated with these transactions. The Audit Committee and its advisors proposed adjustments to previously reported revenues associated with certain of the transactions it reviewed. On a net basis, the proposed aggregate reduction to previously reported revenues relating to these transactions is not expected to exceed $5.5M In most cases, revenues that had been recognized prematurely were, or are expected to be, recognized in subsequent quarters, including quarters subsequent to the quarters impacted by the investigative findings. The investigation further found that certain items that had been recorded as expenses, such as the payment of marketing or servicing fees, were more appropriately treated as contra-revenue items in earlier fiscal quarters. As set forth in the Form 8-K, neither the Company nor its independent auditor has completed its analysis of the specific adjustments to previously reported revenues identified by the investigation, and such analysis could result in further adjustments that could be materially different from those set forth above...As a result of the Audit Committee's recommendations, the Board has determined to implement a range of measures, including but not limited to the following: A reorganization of the Company's senior management team. The addition of a COO who will directly manage a number of operating functions. Enhancing internal compliance through the creation of a Compliance Committee of the Board of Directors, and the hiring of a Chief Compliance Officer who will report directly to the Committee. A splitting of the roles of Chairman and CEO, with Stephen P. Herbert continuing to serve as Chief Executive Officer and as a member of the Board of Directors, and Albin Moschner appointed Non-Executive Chairman. Authorization for the Nominating and Corporate Governance Committee to commence a search to identify two additional independent directors to join the Board."