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Asure Will Not Quantify Revenue Recognized From Potential Fraud

Bad debt allowance spikes as the software firm may never collect receivables tied to tax credit programs under federal probe.

February 27, 2024

A significant portion of Asure Software’s (ASUR) tax processing revenue is generated from the support it provides customers as a tax processor in filing for Employee Retention Tax Credits (ERTCs), the refundable tax credits against certain employment taxes provided for by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) passed during the pandemic in March 2020.

In September 2023, the Internal Revenue Service (IRS) stopped processing new ERC claims after a surge in questionable claims fueled by aggressive marketing that prompted a Department of Justice (DOJ) fraud probe.

The scrutiny poses a significant risk to Asure’s future cash flows.

Without quantifying the impact, Asure has entered into deferred payment arrangements with some customers and referral partners whereby collections from the customer are not expected to be received until after the customer’s future receipt of their tax credit.

Though the related revenue has already been recognized— the company’s policy is to recognize revenue at the time the applicable tax form is completed— Asure may never collect if customers are denied credits due to fraud or other reasons:

“Due to the current political climate related to ERTC, including pending and anticipated changes to ERTC, there is a risk that we may not collect on some of our outstanding percentage of recovery ERTC receivables.”

The company did not immediately respond when DuDil requested it quantify how much cash is at risk of not being collected.

However, the company’s bad doubt allowance for receivables jumped 47.3%, nearly twice the year-over-year (YoY) increase in sales.

The $4.7 million allowance is 3.9% of 2023 sales and 33% of accounts receivable.

Two years ago, DuDil flagged Asure for refusing to provide detail on how it miscalculated earnings two consecutive quarters.

In the quarter ended June 30, 2022, Asure overstated its net loss by $1.3 million, or 15.8%. In the six months ended June 30, 2022, Asure understated its net loss by approximately $500k, or 5%.

The errors, according to Asure, were not material and the company reassured investors its internal controls were effective.

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