Efficient Financial Controls Uncovered in FTX Court Filings, Exposing Previous ‘Hodgepodge’ of Apps

FTX’s Control Failures Revealed in Court Filing

A recent court filing in Delaware Bankruptcy Court has exposed the inadequate financial controls and management structure at FTX, a multi-billion dollar empire. FTX CEO John Ray III provided a detailed account of the deficiencies in the company’s operations, citing the use of multiple apps and online shared documents as a disorganized approach to managing assets and liabilities.

Lack of Proper Financial and Accounting Controls

According to Ray’s statement, FTX relied on a “hodgepodge” of Google documents, Slack communications, shared drives, and Excel spreadsheets to manage its financial operations. The company used QuickBooks, an accounting software designed for small and mid-sized businesses, which was found to be inadequate for a firm operating across multiple continents and platforms like FTX. As a result, FTX’s bookkeeping was neglected, with around 80,000 transactions left as unprocessed accounting entries in “catch-all QuickBooks accounts titled ‘Ask My Accountant.'”

Inexperienced Leadership

Ray emphasized that FTX was run by three inexperienced individuals, co-founders Sam Bankman-Fried and Gary Wang, along with former engineering director Nishad Singh, who had the “final voice in all significant decisions.” Despite their limited experience in risk management and business operations, these three individuals controlled almost every significant aspect of FTX. An unnamed FTX executive even stated that “if Nishad [Singh] got hit by a bus, the whole company would be done. Same issue with Gary [Wang].” Furthermore, FTX could not provide a complete list of its employees at the time of the bankruptcy filing in November 2022, indicating a lack of proper organizational structure.

Failure to File Financials and Back-end Checks

FTX’s control failures extended to failing to file its financials on time at the end of reporting periods and neglecting back-end checks to identify and correct material errors. Brett Harrison, the president of FTX.US, raised concerns about the lack of appropriate delegation of authority, formal management structure, and key hires at FTX.US to Bankman-Fried and Singh. However, Harrison’s concerns were met with a significant reduction in his bonus and instructions to apologize to Bankman-Fried by the firm’s internal counsel, which he refused to do. It was reported that Harrison resigned following the disagreement.

Conclusion

The court filing has exposed the disorganized and inadequate financial controls, management structure, and record-keeping process at FTX. The reliance on multiple apps and shared documents, along with inexperienced leadership and failure to file financials on time, highlights the need for proper financial and accounting controls in running a successful business. FTX’s case serves as a cautionary tale for companies to ensure robust financial controls and management practices to avoid similar pitfalls.