EY failed for more than three years to request crucial account information from a Singaporean bank where Wirecard claimed it had up to € 1 billion in cash – a routine audit procedure that could have uncovered the extensive fraud within the German payment group.
The accounting firm, which has audited Wirecard for a decade, has come under fire after the top-flight fintech company filed for bankruptcy this week, revealing that € 1.9 billion in cash probably “didn’t exist.”
People with first-hand knowledge told the Financial Times that between 2016 and 2018, the auditor did not check directly with Singapore’s OCBC bank to confirm that the lender had significant sums of money in the bank. name of Wirecard. Instead, EY relied on documents and screenshots provided by a third-party attorney and Wirecard itself.
“The big question for me is what did EY do when they signed the accounts? Said a senior banker at a lender with a credit exposure to Wirecard.
A senior auditor at another firm said that obtaining independent confirmation of bank balances was “equivalent to a day’s training in audit school.”
OCBC declined to comment. A person briefed on the details told the Financial Times that Wirecard has no banking relationship with OCBC and the former Singapore-based fintech administrator does not have an escrow account with the bank. The lender did not receive any requests from EY regarding Wirecard between 2016 and 2018, the person added.
The Big Four accounting firm had published unqualified audits of Wirecard for a decade despite growing questions about suspicious accounting practices from journalists and short sellers.
An “out-of-country” team from EY is reviewing the work carried out by its German auditors, according to a person close to the firm.
Germany’s accounting oversight body FREP is reviewing Wirecard’s balance sheet, and the country’s auditor oversight body, APAS, has started reviewing EY’s work. EY declined to comment on the regulatory investigation and the details of its work. FREP and APAS declined to comment.
Asian bank accounts play a central role in Wirecard’s accounting fraud that culminated with the group’s bankruptcy filing on Thursday.
According to the company’s former management, the accounts were used to settle transactions with partners who acted on Wirecard’s behalf in countries where it did not have its own licenses to process electronic payments. Yet it is now unclear whether the accounts – let alone the money that would have been deposited there – ever existed.
Wirecard had told his listeners that the money was transferred late last year from the OCBC to banks in the Philippines, where it is now believed to have been deposited € 1.9 billion.
A special KPMG audit could not obtain from the banks the original documents proving the existence of the deposits. EY was told this month by the banks that the documents it had previously seen on the Philippine accounts were “fake” and that they did not exist.
The chief audit executive of a rival accounting firm EY said: “It’s beyond the realities that EY wouldn’t have had [the bank balance confirmations] unless they did a very bad audit. Cash is easy to audit. If investors can’t trust the treasury number, what can they trust? “
In a statement released Thursday, EY said there were “clear indications that this was an elaborate and sophisticated fraud, involving multiple parties around the world in different institutions, with the deliberate intent of deception.” The company argued that “even the most robust audit procedures may fail to uncover this type of fraud.”
Hansrudi Lenz, professor of accounting at the University of Würzburg, told the Financial Times that it was “not enough” for an auditor to rely on account confirmations provided by third parties. “The auditor must have full control over the delivery of the account confirmation,” he said, adding that this was stipulated by procedural guidelines.
The small German shareholder pressure group SdK said on Friday it had filed criminal complaints against EY auditors who signed Wirecard’s accounts between 2016 and 2018, accusing them of breaching their professional obligations.
Accounts published by Wirecard showed that five different partners of EY have signed its accounts in the past five years. Among them is Andreas Loetscher, who co-led EY’s audits on Wirecard between 2015 and 2017 and joined Deutsche Bank a year later as chief accounting officer.
Deutsche Bank said: “There are a lot of open questions regarding Wirecard. We greatly appreciate our work with Andreas Loetscher. What’s more . . . the presumption of innocence of course also applies to him.
EY is already facing a class action lawsuit in Germany brought by Wirecard investors. Wolfgang Schirp, a Berlin-based lawyer working on the case against the audit firm, said: “It is scary how long Wirecard has been able to operate without being challenged by auditors. We have been monitoring Wirecard since 2008 and have collected a very comprehensive material. It was always clear that something was wrong.
Akshay Naheta, a SoftBank executive who led an investment in Wirecard last year, attacked EY on Twitter last week. “I am totally baffled by the lack of competence and responsibility displayed by E&Y,” he wrote. “As an organization supposed to protect all stakeholders – creditors and shareholders – in companies, both public and private, they have materially failed in their fiduciary obligations.”
For years EY has said it wants to expand its client list on the German DAX 30 index because it audits fewer companies than rivals KPMG and PwC. EY has earned nearly 10 million euros for its Wirecard audits over the past decade.
The Wirecard fraud is one of many international accounting scandals that have emerged under EY’s watch this year, most notably at NMC Health and Luckin Coffee.
Additional reporting by Stephen Morris in London