Quickbooks in crypto firms: Just a sign of the overall disdain for accounting and controls in start-up culture?
Quickbooks in crypto firms: Just a sign of the overall disdain for accounting and controls in start-up culture?
Quickbooks is getting publicity as the software of choice for bankrupt crypto crooks
Startups, especially in the financial services sector, should keep close track of their cash. But founders are notoriously allergic to spending time and money to account for it properly.
That’s what I wrote on February 8 for FT Alphaville about the use of Quickbooks by crypto frauds FTX and Celsius.
The QuickBooks and the dead
Who'll be held accountable for crypto’s amateur accounting?
At a 2019 conference sponsored by the University of Notre Dame’s Mendoza College of Business, U.S. Securities and Exchange SEC Commissioner "Crypto-Mom" Hester Peirce expressed support for rolling back post-Enron reforms that require auditors to provide opinions on internal controls over financial reporting:
“Investors are pretty frustrated, investors in small biotech companies that are pre-revenue. They’re not really excited when there’s a money raise and they’re told ‘your money will be going to pay for the auditor.’ This is not what those investors want their money to be going for.”
You can listen to her entire ridiculousness here:
In fact, Peirce doesn’t really like the SOX requirement for an auditor’s opinion on internal controls for any company under any circumstances.
"If I were king or queen for a day, I would make it optional for everyone.”
Why doesn’t Peirce push a formal proposal for a full repeal of the Sarbanes-Oxley Section 404(b) requirement?
The audit firms may “take me out,” Peirce quipped at the time.
Nowadays few investors push for audited financial statements, or even professionally prepared financials statements, before investing billions. In 2018, I wrote that the ultra-wealthy "sophisticated" Theranos investors never requested audited financial statements before handing over hundreds of millions to Elizabeth Holmes. They would have been disappointed if they had asked because, reportedly, there were none to be had since Theranos' early days.
Theranos used an industry-specific product for manufacturers called QAD, according to the testimony at Holmes trial last year of its Controller, the highest ranking accounting official for most of its last 11 years. It also used Great Plains accounting software according to a source who was close to the action at the time.
Although global audit firm KPMG worked for Theranos for most of this period, it never produced the audited financial opinion it was originally hired for. Instead, KPMG helped produce the reports provided to investors by Holmes and her second-in-command Sunny Balwani.
Both Holmes and Balwani were convicted of federal criminal fraud against investors by California juries.
QuickBooks, and Quicken, are popular accounting software programs used by small businesses and individuals. QuickBooks is designed to be used by small businesses to track customer billing, purchases of supplies and inventory, and cash receipts and disbursements.
Quicken is more like a supercharged personal checkbook, "like having a calculator on your computer,” according to Skyler White, wife of TV show Breaking Bad's methamphetamine cooker character Walter White. Skyler was a big fan of Quicken for keeping track of how much drug cash she laundered. In the show, an IRS agent, expresses surprise she was using it for "a business of this size."
Recently FT Alphaville reported on another crypto firm that had several mistakes in an investor presentation.
”…crypto venture capitalist Yida Gao, who set up an independent shop in 2021 after gigs with New Enterprise Associates and Struck Capital. He pulled in $200mn near the top of the market from investors, including hedge funders like Bill Ackman and Alan Howard. Alphaville was recently shown several versions of the investor presentation for Gao’s fund, Shima Capital, and a comparison raises a puzzling question: what happened to the “90x” gain highlighted in the original slide deck from summer 2021?”
The CEO told reporters “only some investors did due diligence on the tokens’ track record in the presentation,” in an interview from Puerto Rico, “where he relocated last year for tax reasons…Gao said his token-investing track record was assembled manually from information about his previous funds and his personal records. The fundraising slide deck misstated the date and price at which he actually purchased BitClout, he added, and also included a “fat finger error” that overstated the price at which he sold it.
“I didn’t have, like, a Grant Thornton or somebody audit my personal books.”
FT Alphaville concludes that things will improve now that Shima has engaged BDO in the Cayman Islands to prepare an audit of its 2022 financial results.
BDO, too, can be expected to pay closer attention to the details — and auditors live by a different creed than “no harm, no foul”.
I don’t know if you should count on that.
© Francine McKenna, The Digging Company LLC, 2023
Yes, it is big money to do the assessments as part of audit where you are the auditor and consult to companies to improve controls, systems, documentation, etc where you are not. Not as much as in the beginning before companies complained and the rules were redrawn from AS2 to AS5. But still huge.
Not to be dense, but with respect to Peirce's "take me out" comment, the auditors prefer to have SOX in place because they can charge more to implement it?