Mining tech company K2fly (ASX: K2F) is set to incur a substantial loss for the year, having uncovered suspicious payments totalling $745k in a case of suspected fraud committed by a former employee in their South Africa office.
Investigations are ongoing but upon initial concerns in accounting discrepancies, K2fly engaged external auditors which have now confirmed it is likely that the mining tech company has been defrauded by a former employee. That employee had been responsible for managing the tax affairs of a subsidiary company in South Africa where K2fly has an office to base operations given the large addressable market of miners in Africa that can utilise their resource management and reporting technology.
Based on the initial progress report from investigators, the fraud had been ongoing for a period of time. All financial management duties for the office have now been taken over by K2fly’s Australian office under the oversight of the Company CFO.
While K2fly has insurance measures in place to deal with such a situation, the Company is uncertain whether a claim would be successful and has therefore not yet lodged one.
Conscious of the missing cash, K2fly included a line of contingent liability for $323,500 in their half year report ended 31 December 2021. Should there not be an insurance claim lodged, this figure would increase in future reporting until it is written off as a cash loss.
K2fly could potentially pursue the funds via civil legal proceedings against the former employee, and have notified the relevant authorities in South Africa of the situation.
Specialising in the resources industry, K2fly provides software that enables resource companies to document and manage their assets within the platform that can track their Environmental, Social and Governance (ESG) compliance. The data can also be cross-integrated across the platform to ensure customers are mitigating risks around their social licence to operate.
For the half year ended 31 December 2021, K2fly reported $4.5 million in revenue which represented a 34% increase on the previous year, but the Company still incurred a net loss after tax of $1.7m.
K2fly’s platform is used by some of the biggest mining companies in the world including Rio Tinto, Fortescue, South32 and Glencore, across 54 different countries.