The troubled online lottery company Lottery.com has revealed it is facing “material weaknesses” in its accounting noncompliance, despite ongoing class actions.
Lottery.com’s Q2 2022 long-delayed financial report highlighted a number issues regarding the effectiveness of the controls and procedures used to report its financial results.
The company identified a number “deficiencies”, specifically in the design and implementation of these procedures. The online lottery portal reported a “lack” of staff with the necessary knowledge and experience to account for complex transactions.
Lottery.com said its policies and procedures related to the review and supervision of its accounting functions and reporting were “either not designed, not in place or operating effectively”.
This resulted in the company’s inability to “completely close the financial books in a timely manner” at quarter or fiscal years, as well as an incomplete separation of duties for certain types of transactions.
The business claimed that it had not designed and maintained sufficient procedures and controls in relation to non-routine transaction, such as sales of LotteryLink Credits.
The “overstatement of revenue” for the year ended 31 December 2021 was $52.1m. In July 2022 the overstatement led to Matthew Clemenson resigning as chief revenue officer.
The company responded by implementing a series of corrective steps to improve its processes and address any material weaknesses.
The business stated that this included hiring personnel with adequate accounting knowledge and adopting “a rigorous” period-end financial reporting review process.
Lottery.com also said it had improved its accounting processes, and that now the separation of duties in their transactions is clearly documented.
The business said that “the implementation of our remediation is ongoing, and will require testing and validation of the design and operational effectiveness of internal control over a sustained period” of financial reporting cycles.
We may also determine that additional steps are needed to correct the material weaknesses of our internal controls over financial reporting.
Ongoing class action lawsuit
The business has a number ongoing lawsuits in response to these weaknesses. In August 2022 the business received a class-action lawsuit on behalf of investors, against Lottery.com. and former high ranking employees.
The lawsuit alleges that “materially false and misleading statements” were made by the business, as well as that it failed to disclose the lack of adequate internal accounting controls.
The suit stated that “as a consequence of defendants’ wrongdoings and omissions and the precipitous drop in the value of the company’s securities, Plaintiff and other members of the class have suffered significant damages and losses.”
The class action lawsuit is expected to respond to the motion filed by Lottery.com to dismiss the lawsuit in April. This would set a deadline for the company to reply no later than 20 June.
Lottery.com sees revenue drop by a large amount
The revenue for the three months ending 30 June 2020 was $1.89m. This is a decline of 81% from the $9.88m that the company recorded during the same period the previous year.
Professional fees increased by 4215%, or $9.51m. Personnel costs also increased by 370%.
The net loss of the business rose by 1159%, to $15.45m over a three-month period.
