Two top former executives of employee benefits administrator WageWorks have settled charges that they misled company accountants and auditors, resulting in the improper recognition of $3.6 million in revenue from a client.
According to the U.S. Securities and Exchange Commission, former CEO Joseph Jackson and former CFO Colm Callan failed to disclose that the client was balking at making payments for development and transition work under a contract to provide benefits servicing to certain public-sector employees.
At one point, when an audit firm partner asked about an unpaid invoice, both Jackson and Callan allegedly said the client had rejected the invoice because it had been submitted in the wrong format and that WageWorks expected to be paid after it resubmitted its invoice.
In 2018, after the company’s auditor learned that the client didn’t intend to pay the $3.6 million, WageWorks restated its financials for the second quarter, third quarter, and fiscal year of 2016, reversing the entire amount of revenue it had previously recognized.
Jackson and Callan resigned from WageWorks when the restatement was announced in April 2018. Callan had joined WageWorks as CFO in September 2014 after working at PayPal and eBay.
To settle the SEC’s charges of accounting violations, Jackson agreed to pay a $75,000 penalty and reimburse WageWorks about $1.9 million in incentive-based compensation and profits from the sale of shares, and Callan agreed to pay a $100,000 penalty and reimburse WageWorks $157,590 in compensation.
“Jackson and Callan repeatedly failed to share important information about WageWorks’s ability to collect a significant receivable with WageWorks’s internal accounting personnel and external auditor,” Erin Schneider, director of the SEC’s San Francisco Regional Office, said in a news release.
“Public companies and their executives must consider all material facts — not just the ones that are favorable to their position — when making financial reporting decisions,” she added.
The March 1, 2016 contract required WageWorks to undertake development and transition work to prepare for assuming responsibility for processing claims on Sept. 1, 2016. As early as April 2016, the SEC said in an administrative order, Jackson and Callan “were aware of [the client’s] position that it did not intend to pay for” the preparatory work.
The SEC noted that based on WageWorks’s 2016 financial performance, Jackson and Callan both earned cash bonuses.
WageWorks was acquired by HealthEquity for $2 billion in August 2019.