Q4 2024 | Case Study
In Q3 2024 a mid-sized payment solutions firm processing over $100M in annual transactions, approached Prinz & Partners with an unusual balance sheet discrepancy that emerged shortly after their integration of cryptocurrency payment options. The firm’s balance sheet showed persistent minor inconsistencies that, while small individually, accumulated to material amounts over time. The firm was preparing financial statements and paperwork for the initial stages of the IPO process, and needed to have everything in perfect order to proceed.
The client had been operating as a traditional payment solutions platform since 2018, primarily handling fiat currency transactions for e-commerce businesses. In response to growing market demand, they expanded their services to include cryptocurrency payments in June 2024, initially supporting Bitcoin and Ethereum transactions.
• Monthly balance sheet discrepancies ranging from $4,000 to $8,000
• Inconsistencies began appearing within 2 weeks of crypto payment integration
• Internal audit team unable to identify the root cause
• Growing concern about regulatory compliance and audit preparations
Our team began by mapping the entire transaction flow from customer initiation to merchant settlement. We performed a complete audit of the transaction flow for both traditional fiat and crypto payments, analyzing how each component was recorded and cross-referenced across the client’s balance sheet. We collected three months of transaction data, comprising:
• 7K cryptocurrency transactions
• Total transaction value: $3M
• Average transaction size: $430
• Transaction split: 65% BTC, 35% ETH
• Monthly discrepancy: $9,600
Upon analyzing the crypto transaction flow, we noticed an inconsistency between the gross revenue recorded at the time of the transaction and the actual net revenue our client received at settlement. The root cause was identified as a systematic accounting error in the handling of blockchain network fees. The client's system was:
• Recording the gross amount of cryptocurrency transactions in accounts receivable
• Actually receiving the net amount after blockchain fees
• Not accounting for these fees in their general ledger
We met with the client and the third party that processes crypto transactions, and made sure that they were aligned on how the fees were calculated and that the received amount was net of fees. We also implemented a reconciliation account that would keep track of the blockchain fees, and the client’s IT department is currently working on integrating a solution that will automatically track the fees and sum them up in an easily accessible manner.
The outcome of the case was that our client’s balance sheet was balancing, meaning that they were one step closer to being IPO compliant. The underlying issue, however, ran deeper than this and it was very important for our client to realize what was causing the disparity and the lower amount of actual revenue compared to the expected (unearned) revenue that was recorded initially.
This case demonstrates the importance of understanding the technical nuances of blockchain transactions in financial operations. The solution required a combination of technical understanding, accounting expertise, and systematic process improvement.
