EY did not request Wirecard bank statements for 3 years

For more than three years, EY did not request crucial information from a Singapore bank account where Wirecard claimed it had up to a billion euros in cash, a routine audit procedure that could have uncovered the huge fraud in the payment group. German.

The accounting firm, which audited Wirecard for a decade, came under fire after the once-high-flying financial technology company filed for bankruptcy this week, revealing that € 1.9bn in cash probably “didn’t exist.”

People with first-hand knowledge told the Financial Times that the auditor between 2016 and 2018 did not directly check with OCBC Bank of Singapore to confirm that the lender had large amounts of cash on behalf of Wirecard. Instead, EY relied on documents and screenshots provided by an external administrator and Wirecard.

“The big question for me is what the hell did EY do when the accounts closed.” a senior banker from a lender with credit exposure told Wirecard.

Obtaining an independent confirmation of bank balances was a senior auditor at another firm “equivalent to first day training at the 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 that the former Singapore-based Fintech manager does not have an escrow account with the bank. The lender did not receive any EY inquiries regarding Wirecard between 2016 and 2018, the person added.

Accounting firm Big Four had issued unrated Wirecard audits for a decade despite growing questions about suspicious accounting practices by journalists and short sellers.

A team “out of the country” at EY is reviewing the work done by its German auditors, according to a person close to the firm.

German accounting regulator FREP is investigating Wirecard’s balance sheet, and Germany’s supervisory body for auditors, APAS, has begun investigating EY’s work. EY declined to comment on the regulatory investigation and the details of his work. FREP and APAS declined to comment.

Accounts at Asian banks play a critical role in Wirecard’s accounting fraud that culminated in the group’s insolvency filing on Thursday.

According to the company’s former management, the accounts were used to settle transactions with partners who acted on behalf of Wirecard in countries where it did not have its own licenses to process electronic payments. However, it is now unclear whether the accounts, let alone the money allegedly deposited there, ever existed.

Wirecard had told its auditors that the money was moved late last year from OCBC to banks in the Philippines, where it is now allegedly deposited € 1.9 billion.

A special KPMG audit was unable to obtain original documents from banks to demonstrate that deposits existed. The banks told EY this month that the documentation it had previously seen in the Philippine accounts was “spurious” and that they did not exist.

The chief audit officer of a rival EY accounting firm said: “It is beyond realms that EY would not have had. [the bank balance confirmations] unless they did a very poor audit. Cash is easy to audit. If investors can’t trust the cash 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 parts of the world in different institutions, with a deliberate goal of deception.” The company argued that “even the most robust audit procedures may not uncover this type of fraud.”

Hansrudi Lenz, a 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 needs to have full control over the delivery of the account confirmation,” he said, adding that this was stipulated by procedural guidelines.

Germany’s small shareholders lobby group SdK said on Friday that it filed criminal complaints against EY auditors who signed Wirecard accounts between 2016 and 2018, accusing them of violating professional duties.

Accounts released by Wirecard showed that five different EY partners signed their accounts in the past five years. Among them is Andreas Loetscher, who co-led EY audits on Wirecard between 2015 and 2017 and a year later joined Deutsche Bank as chief accounting officer.

Deutsche Bank said: “There are many open questions regarding Wirecard. We greatly appreciate our work with Andreas Loetscher. On the other hand . . the presumption of innocence, of course, also applies to him. ”

EY is already facing a class action lawsuit in Germany filed by Wirecard investors. Wolfgang Schirp, a Berlin-based lawyer who is working on the case against the audit firm, said: “It is terrifying how long he was able to operate Wirecard without being challenged by auditors. We have been monitoring Wirecard since 2008 and have collected very extensive 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 competition and responsibility shown by E&Y,” he wrote. “As an organization designed to protect all stakeholders, creditors and shareholders, in companies, both public and private, they have materially failed in their fiduciary duties.”

For years, EY has said it wants to expand its client list on Germany’s DAX 30 index, as it audits fewer companies than its rivals KPMG and PwC. EY earned nearly € 10 million from its Wirecard audits in the past decade.

The Wirecard fraud is one of several international accounting scandals that have emerged under EY’s supervision this year, including at NMC Health and Luckin Coffee.

Additional reports by Stephen Morris in London