Fallen neobank Xinja switched auditors and had trouble delivering services to customers during its final year of operation, as it struggled to secure the cash needed to stay afloat.
Corporate documents, obtained by The Age and The Sydney Morning Herald, show Sydney-based firm Grant Thornton ceased to be Xinja’s auditor in April, with its last financial statement warning the neobank temporarily breached its minimum capital requirements.
Grant Thorton said Xinja’s cash flow relied on “injections of additional capital” to maintain a buffer above Australian Prudential Regulation Authority’s requirements to continue operating lawfully. The report also noted the group needed to cut costs and expand products to stay afloat.
“Should the above transactions or assumptions not materialise, there is a material uncertainty whether the group will continue as a going concern,” Grant Thornton’s auditors warned.
Seven days later, Grant Thorton ceased to be Xinja’s auditor and was replaced by big four auditing firm PwC.
Grant Thornton senior auditor Alison Sheridan said her final audit drew attention to the company’s dependency on capital raising to sustain operations. “In 2019 Xinja’s Board made the decision to change auditors,” Ms Sheridan said.
Xinja made a public statement on April 17, indicating it was the auditor’s decision to resign: “This is a public announcement (which we’re obliged to make by law – excuse the formality) – confirming the resignation of Xinja Bank Ltd’s former auditor which will be effective from 17th April 2020.”
Xinja paid more than double for its new audit team – $460,000 for PwC compared to $179,557 for Grant Thorton – and received largely the same advice.
PwC found the company’s position was concerning and pointed out the company’s over-reliance on raising money from third parties. “There is a material uncertainty that may cast significant doubt on the group’s ability to continue as a going concern,” PwC found. The audit also referred to Dubai-based World Investments’ lifeline investment of $433 million as “non-binding”. A Xinja spokesman confirmed there had been no communication with the investors since making the decision to exit banking.
Governance expert Helen Bird, who sits on the Australian Securities and Investment Commission’s corporate governance consultation panel, said companies can switch auditors if they are not pleased with the findings.
“The auditor’s role is to warn you about the potential problems,” Ms Bird said. “They may have been allergic to something they didn’t like the look of, reported it, and Xinja didn’t want to hear it.”
Xinja’s financial records show its losses have multiplied in recent years. In 2018, the company reported a loss of $6.5 million and the following year this had more than tripled to $21.8 million.
Over the course of this year, its once-dedicated customer base which had helped raise close to $5 million through crowdfunding, took to Xinja’s since-deleted online community forum to vent their fury about problems using the online bank.
The forum, accessed by The Age and Sydney Morning Herald using open source technology, shows customers complaining about app crashes, frozen accounts and disappearing money.
“So I cannot send money right now because Xinja ‘cannot connect to servers. It’s not you, it’s us’,” one customer posted in February, to which Xinja responded: “Sorry the app hasn’t been playing ball this afternoon!“
In March, a customer complained of the high-interest “stash” accounts disappearing: “WTF is going on? Starting to lose faith in Xinja very quickly.”
Another customer asked in August when Osko – technology that enables instant bank transfers – would be installed. “It’s been pushed out a number of times. Sometime next year. US share trading seems to have taken priority over everything.”
A Xinja employee responded: “We’re aiming for this quarter.”
In late-September, a customer complained of repeatedly being locked out of their account due to the app’s inability to remember passwords. A Xinja employee once again promised changes were on the way. “The good news is that we’re aiming to move from an email verification sign in process to mobile verification in the near future, which will make things easier for you with the Apple auto-fill setting on your device.”
Less than three months later, the company terminated banking services – the same day the banking app crashed again. A spokesman for Xinja said the decision to return deposits was made only in the past week and the payments function was now working again.
Source: Thanks smh.com