Paytm Mall employees created fake orders for certain third-party vendors
The employees earned cashback on these fake orders and further commission from sellers
E&Y has been reportedly conductive audits for several weeks
Paytm’s ecommerce subsidiary Paytm Mall has partnered with audit and consulting company E&Y (formerly, Ernst & Young) to build a technology-based fraud prevention system. According to anonymous sources, the audit giant has been roped in to investigate an alleged cashback fraud involving its staff members.
According to a TOI report, which cited unnamed sources, a group of junior and mid-level employees at Paytm Mall created a fake list of vendors, orders and customers to exploit the funds.
The sources added that some employees joined hands with third-party vendors and created small-sized fake orders. The staff used vendors and customer profiles and claimed cashback on these orders, and also received further payments from these vendors as commission.
The relatively small ticket size of the fraudulent sales managed to evade the attention of the management. However, Paytm Mall later noticed a pattern of repeat orders from certain consumer profiles, which led to its investigation.
Paytm Mall’s Decline And Losses
In October 2018, it was reported that Paytm Mall recorded a net loss of $245.65 Mn (INR 1,800 Cr) in FY2018, nearly 150 times its net loss of $1.86 Mn (INR13.63 Cr) in the previous financial year.
To manage its losses, the company has been looking to reduce if cashback offers. In February, it was reported that Paytm Mall has now slashed cashbacks by more than 80% across its online marketplace categories such as grocery, electronics and fashion. The move was made to build a stronger O2O (online-to-offline) model where the company will be investing largely this year.
Given the decline in revenue, the company is looking to root out malfeasance from its ranks. In an official statement, the company has partnered with E&Y, which will conduct frequent audits to identify, analyse and monitor various in-built and outsourced processes to recommend best practices.
“Our partnership with E&Y will help benchmark with global best practices as we build a Technology Driven Fraud Prevention System to scale our operations. Our teams continue to work closely with E&Y to share our learnings and insights,” said Srinivas Mothey, Sr. vice president of Paytm Mall.
Deep Audit Across The Business
According to the company, the admin, finance and other support functions as well as the business operations team which works closely with partnered merchants to plan and execute cashback offers and promotions, will be audited. Under this partnership, E&Y will also undertake audit and fraud prevention using human monitors and artificial intelligence.
Recently on May 9, Entrackr exclusively reported that E&Y had been conducting a forensic audit at Paytm Mall for the past several weeks. During the audit process, the company discovered lapses and alerted Paytm Mall that some of its employees may be involved in a potential scam. Based on the audit results, the ecommerce company has already fired about 20-25 employees.
Paytm Mall has been looking at various options to get out of the rut. US-based ecommerce marketplace eBay is speculated to lead a $160-170 Mn strategic investment in Paytm Mall as it looks to explore an offline-to-online commerce and payments strategy in India.
In order to strengthen the Paytm Mall operations, the company also did a major top management reshuffle. As a part of this, Paytm Payments Bank CFO Sudhanshu Jain was selected to lead the ecommerce business as the financial comptroller. Alibaba Group senior director Bharti Balakrishnan and Paytm vice-president Varun Gupta are leading its shopping categories, while Srinivas Mothey was named Paytm Mall’s chief marketing officer.