SEC Charges Paycom for Overbilling Clients
July 30, 2021
ADMINISTRATIVE PROCEEDING
File No. 3-20443
July 30, 2021 - The Securities and Exchange Commission today announced settled charges against Paycom Software, Inc. for violating the books and records and internal accounting controls provisions of the federal securities laws in connection with its overbilling of clients. Paycom has agreed to pay $250,000 to settle the action.
According to the SEC's order, since becoming a public company in April 2014, Paycom has overstated its reported recurring revenues for 2011 through 2020 as a result of "reselling" certain services, i.e., billing its clients for services for which the clients were already paying. The order finds that from 2011 through 2018, certain of Paycom's Client Relations Representatives - sales personnel who provide additional services to existing clients - identified instances where clients were paying for a service offered by Paycom, but were unaware that they had the service. The sales personnel would then resell the same service to the client and bill an additional fee. The order finds that Paycom's incorrect reporting of revenues by including these resold amounts peaked in 2016, while such overbilling of clients caused the company's reported revenues to be inaccurate from 2011 through 2020.
The order further finds that concerns regarding reselling were raised by an employee in 2016 and allegations of reselling were received by Paycom in 2017. Paycom's internal accounting controls were, however, insufficient to prevent such reselling of services and the inaccurate reporting of revenues resulting from it. According to the order, while the staff's investigation was ongoing, Paycom instituted an internal accounting control specifically related to reselling and overbilling, and returned to overbilled clients approximately $2.8 million, representing $2.4 million in overbilled services and $385,000 in related interest.
The SEC's order finds that Paycom violated Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934. Without admitting or denying the Commission's findings, Paycom has agreed to cease and desist from committing or causing any future violations of these provisions and to pay a civil penalty of $250,000.
The SEC's investigation was conducted by David Stoelting, Kenneth Gottlieb and Steven G. Rawlings, and supervised by Sanjay Wadhwa.