Feb 2007 Financial News

Grace's $466m tech glitch

Feb 16, 2007

GraceKennedy Limited is likely to take a near half-billion-dollar hit from technology glitches which developed last year during upgrades to its money transfer platform.

The conglomerate has made provisions for the 'doubtful receivables', which contributed to a 12 per cent drop in its profit for its financial year ended December 31.

The provisions were booked in the final two quarters, amounting to $466 million.

In a report to shareholders accompanying its financial statements for the last quarter of 2006, GK chairman, Douglas Orane, said additional provision of $281 million was made during the quarter in its Jamaican remittance business, which trades under the name GraceKennedy Remittance Services (GKRS).

In an interview with the Financial Gleaner, Orane said that the doubtful receivables derived from "weakness in the controls" during changes in the technology system.

The provision during the last quarter added to the $185 million made during the three months to September 30 last year.

"The provision was primarily due to doubtful receivables for which collection efforts are continuing," Orane told the Financial Gleaner in an interview yesterday.

"We have 300 agents across Jamaica who are run by independent operators," explained Orane. "In the system there is a process of reconciliation of transfer of funds between remittance business and agents in the field."

It was a change of the firm's IT system, according to Orane, that created weakness in controls. Since then, the company has remedied the problems occurring in the IT system, as well as strengthened internal controls, including the processes which employees follow.

The provisions were expensed and reflected in the profit and loss.

GraceKennedy made $1.87 billion net profit, $251 million or 12 per cent lower than in 2005, against the background of a $3.1 billion or nine per cent increase in revenue to $35.1 billion.

The conglomerate's information services division, under which Western Union, Bill Express and FX Trader operates, had 4.8 per cent increase in revenue to $3 billion, but pre-tax profit fell by $371 million or 62 per cent to $228 million during 2006.

"A smaller portion of the provision," according to Orane, covered losses deriving from fraudulent activity occurring on of the company's branches, a matter now in the hands of the Police Fraud Squad.


Source:
Camilo Thame- Business Reporter
The Jamaica Gleaner
Friday 16th February, 2007

http://www.jamaica-gleaner.com/gleaner/20070216/business/business2.html