Groupon Goods revenue lower than reported to SECGroupon, the troubled daily deals company, has found a new way to mislead its investors. By my estimates, Groupon inflated its first quarter North American revenue by 5% to 8%. (Disclosure: I have various puts and wagers against Groupon.)

The key to this inflation is how Groupon is handling the revenues for Groupon Goods. Goods is Groupon’s liquidation business, where Groupon sells physical products. Today’s selection includes tank tops and a baby monitor.

Groupon is booking the entire amount paid by the consumer as revenue, instead of just the part that it gets to keep.

Groupon shifted from drop shipping to what’s called third-party logistics (3PL). In drop shipping, you send an order to a vendor and they send that order directly to the consumer. With 3PL, you hire an intermediary to take possession and fulfill the order.

Although gross vs. net accounting can be a mind-numbing subject filled with a lot of detail, generally speaking if you drop ship, you only get to count as revenue the amount that you get to keep. For example, if you sell a $100 iPod dock and get to keep $20, you can book $20 in revenue. If you actually take possession of the iPod dock and meet certain other criteria that define you as a principal, you get to book $100 in revenue and count the $80 as the cost of goods sold.

According to a source who used to work at Groupon Goods, the shift was made to inflate revenue. The source said the head of Groupon Goods would “wax poetic about how he will get around anything the SEC has to say.”

Asked for comment, Groupon spokesman Paul Taaffe responded, “You are so far off base you risk ridicule.”

Groupon hired Echo Global Logistics to handle its third-party logistics, according to Groupon’s quarterly filings. Echo is run by several of Groupon’s key leaders. “Three of the Company’s directors, Peter A. Barris, Eric P. Lefkofsky, and Bradley A. Keywell, are directors of Echo and have direct and/or indirect ownership interests in Echo,” according to Groupon’s quarterly filings.

It’s unclear whether the involvement of Echo Global Logistics is purely a paper transaction or if Echo actually takes physical possession of inventory. Based on a test purchase I conducted, it seems that the item was drop shipped.

If the gross vs. net accounting distinction sounds familiar, it should. Last summer, Groupon was forced to restate its revenue numbers. It had been counting all of the revenue it received from daily deals as its own, despite having to pay more than half of it over to merchants of daily deals. Before its IPO, it restated all of those numbers to reflect just the portion that it kept, cutting its reported revenue by more than 50 percent.

Groupon is no stranger to accounting woes. It previously tried to exclude all of its marketing costs from its bottom line and understated its refund reserves. This is the fourth critical accounting misstep for the company.

Booking Goods revenue as gross has had another important effect: it inflates a key metric that Groupon analysts have been using to measure the health of the company. Analysts have been looking at the take rate, the portion of each deal that Groupon gets to keep. They have been calculating take rate by dividing the company’s revenue by its gross billings. Because it counts every dollar of Groupon Goods as revenue, this has counted as $1 in both the numerator and the denominator.

Groupon Goods has lower margins than the company’s core daily deals business. On electronics, it can be in the 15 to 20% range. (vs. 40% to 60% for daily deals.) But based on the way analysts calculate take rate, a Goods transaction would seem to have a take rate of 100%.

So something that is actually worse appears to be better. Groupon had the opportunity to clear this up in its earnings call. An analyst mentioned the higher take rate. But Groupon executives didn’t take the opportunity to explain that Groupon Goods could be inflating the take rate.

The revenue inflation will likely be exacerbated when Groupon reports its second quarter earnings on August 13. Goods is one of the few bright spots in the company’s portfolio, and I expect that it will be an even larger percentage of revenue for the second quarter.

Given the history of Groupon and accounting, it’s hard to believe that these are all innocent mistakes. Investors should be very wary.

[Top image credit: ruigsantos/Shutterstock]