Filed Under:Risk, Corporate Risk

Willis Writes Down $28M Embezzlement Scheme

NU Online News Service, March 13, 3:38 p.m. EDT

Willis Group Holdings took a charge of $28 million after an internal audit discovered a group of employees within the company falsified commissions and fees earned for more than five years.

In a filing with the Securities and Exchange Commission, London-based insurance broker Willis says an audit discovered an uncollectable accounts receivable balance of about $28 million covering the years 2005 to 2011.

Based on an internal investigation, Willis says it believes that an overstatement in the handling of receipts occurred from the actions “of a few associates” in its Employee Benefit group who “colluded to misapply certain current cash receipts to older outstanding accounts receivable balances.”

Willis says it did not uncover the scheme until after its Feb. 14 annual earnings announcement and it has subsequently taken a $22 million charge to other operating expense to write off the uncollectible receivables.

The firm also reversed a $6 million balance on commissions and fees that were recorded for 2011. An additional $2 million of salaries and benefits was also reversed “representing an over-accrual of production bonuses relating to the overstated revenue,” Willis says.

The resulting correction translated into a 1 cent reduction in adjusted earnings per diluted share from the Feb. 14 financial report.

Willis says the associates allegedly involved in the scheme have been placed on administrative leave “pending completion of the investigation.”

The individuals were not part of the company’s executive team, Willis says, or “played a significant role in internal control over financial reporting.” Willis says no client or carrier funds were involved in the scheme and no other business units were affected.

The broker says it has taken steps to prevent a similar scheme in the future that includes “enhanced procedures over handling of cash receipts” and segregation of duties between the operating units, accounting and settlement functions. The company will also institute “additional central sign off on revenue recognition.”

A spokesperson for Willis declined additional comment on matter, referring to the filing for all details the firm is willing to release. There was no immediate response to a question about whether Willis plans to file criminal charges.

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