Exclusive: Paytm Mall’s dodgy affair - E&Y is conducting forensic audit around potential fraud

Ever since Entrackr broke the story of Paytm Mall-scale-down of B2C business in January, multiple media reports surfaced building on our reportage. While Vijay Shekhar Sharma and investors are toiling hard to turnaround the commerce business, the company has slipped into more troubles as the board mandated E&Y to conduct a forensic audit at Paytm Mall.

Over half a dozen sources inside and outside Paytm Mall have confirmed that forensic audit is underway at the Noida-based firm. “Ernst & Young has been conducting a forensic audit at Paytm Mall for the past several weeks. The audit has been approved by the board after E&Y completed a process audit in January this year,” said three reliable sources to Entrackr.

During the process audit, E&Y found lapses and alerted Paytm Mall about some employees’ involvement in a potential scam. While we haven’t been able to gather details about the nature of irregularities or fraud, sources emphasised some employees connived with service providers and that resulted in a huge loss for the company.

For the uninitiated, a forensic audit is an examination and evaluation of a firm's or individual's financial information for use as evidence in court. A forensic audit can be conducted in order to prosecute a party for fraud, embezzlement or other financial claims

“About 100 employees have been grilled by the auditor. Employees’ email and chat are scanned to ascertain their involvement in any irregularities. Importantly, employees are asked to furnish consolidated bank statements to know whether they have received any kickbacks,” added above sources.

Sources requested anonymity as the matter is sensitive and they are not allowed to speak to media.

“Based on findings of the forensic audit, Paytm Mall has already fired about 20-25 employees,” outlined sources. Entrackr also spoke to several former as well as existing employees who have been interviewed by the auditor for investigation purpose.

Detailed queries sent to Sharma and Alibaba didn't elicit any response till the publication of this post. “We never comment on the internal matters of our portfolio companies,” said SoftBank spokeswoman in an email response. Entrackr also sent separate queries to E&Y. We will update the post as and when they respond.

Hived off from the parent entity – One97 Communication in late 2016, Paytm Mall took one of the shortest durations to become a Unicorn. This was achieved on the back of the tried and tested cashback model of Paytm itself, a model that sadly failed to work for Paytm mall.

So far, Paytm Mall had closed about $645 million in total funding from Alibaba and SoftBank. Currently, it's also negotiating up to $200 million round from eBay. Entrackr had exclusively reported about eBay's probable investment in the firm.

Following the decision of downscaling consumer-facing business, Paytm Mall went through massive leadership and middle management attrition while facing the seller’s flak for unsold inventories.

It’s worth noting that so none of the large-scale e-commerce company had encountered such a situation that required a forensic audit apart from Jabong. Now acquired by Flipkart, previously part of Rocket Internet, Jabong had gone through a forensic audit.

The audit found some fraudulent transactions and misuse of the company’s resources for personal gains by individuals.

Past seven to eight months have turned Paytm into a hornets’ nest with several crisis hitting the house at the same time. Paytm extortion case involving Sonia Dhawan and three other employees came right around the time Paytm Mall began pivoting from a consumer-facing e-commerce platform to B2B business.

For the past couple of months, Paytm’s payment business is also losing its charm with the daunting competition from Google Pay and PhonePe that are rapidly catching up to the speed.

Nothing can be ascertained around the connection between these events, but one thing that definitely can be assessed that there are a lot of shady matters going on inside Paytm offices. Who is involved in this matter, or isn’t, will be determined via the results of this audit report.