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LONDON—Willis Group Holdings P.L.C. says it has discovered about $28 million in fraudulent overstatements of commissions and fees since 2005, and that certain employees have been placed on administrative leave until an internal investigation is complete.
In a filing last week with the U.S. Securities and Exchange Commission, the London-based insurance broker said the matter was discovered earlier through its internal financial control process, but said it was not brought to management's attention until after Willis announced its annual earnings on Feb. 14.
The issue involves “an uncollectible accounts receivable balance of approximately $28 million in a stand−alone business unit that appears to be due to fraudulent overstatements of commissions and fees from the years 2005 to 2011,” Willis said in the filing.
Willis said an unnamed professional adviser is helping its internal investigation.
“Based on the results of the investigation to date, we believe that the overstatements resulted from the conduct of a few associates within or dealing with our employee benefits group who colluded to misapply certain current cash receipts to older outstanding accounts receivable balances,” Willis in its filing. “We have concluded that the overstatements we uncovered did not materially affect our previously issued financial statements for any of the prior periods.”
Willis said for the year ended Dec. 31, 2011, it has corrected the misstatement of commissions and fees from prior periods “by recognizing a $22 million charge to other operating expenses to write off the uncollectible receivable at Jan. 1, 2011, and by reversing the $6 million balance of commissions and fees which had been recorded during 2011.”
Willis also said it reversed $2 million in salaries and benefits that represented an “over-accrual” of production bonuses relating to the overstated revenue.
“The associates in question, who have been placed on administrative leave pending completion of the investigation, have not been members of Willis executive management or played a significant role in internal control over financial reporting,” Willis said in its filing. “Based on the results of our investigation to date, we do not believe that any client or carrier funds were misappropriated or that any other business units were affected.”
Willis said it has taken steps to enhance internal controls concerning the affected business unit, which it did not identify.
A spokeswoman for Willis declined to comment.
Willis said last month that it would begin to again accept contingent commissions on some benefits business.
The spokeswoman said the decision to “begin accepting contingent commission in our (employee benefit) business is completely unrelated to the disclosure” in the filing.