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It is the iron law of every auditor: never speak publicly about a mandate. This also applies to EY inspectors. Except this rule has become an increasingly difficult burden on the company in recent months.
Since the collapse of the payment processor Wirecard, for which EY had audited annual financial statements for many years, auditors have been publicly embarrassed. You can’t really say anything, at least nothing specific, to defend yourself.
But now the management has decided to break the silence. At least towards clients, which include Deutsche Bank, Siemens and Volkswagen. For the first time, EY comments in the letter on allegations of having examined too negligently, possibly even being part of the fraudulent activity, at the end of which € 1.9 billion of alleged assets had vanished into thin air. The letter is available to SPIEGEL.
“Many people believe that the Wirecard fraud should have been exposed sooner, and we fully understand that,” writes Carmine Di Sibio, EY’s global director. It assures you of the seriousness with which the accusations against the company are taken. “Although we were able to expose the fraud, we regret that it was not discovered earlier.
One was faced with an elaborate and sophisticated system of fraud that not only EY, but also investors, banks, forensic and legal examiners, and state supervisors had not seen in a long time. When EY requested bank confirmations for Wirecard escrow accounts, they would have been presented with counterfeit bank documents, Di Sibio writes. He claims that his people discovered the falsification of the balance sheet in June this year, and not the KPMG auditors, who had conducted a special audit since October 2019.
Suggestions for some kind of reform
Di Sibio proposes a series of changes in the work of auditors so that machinations like in Wirecard can be clarified more quickly in the future, including more rights to conduct investigations even on social media, or the obligation to use such techniques for auditors every year. to train. Di Sibio also recalls the responsibility of the supervisory board, which is primarily responsible for rigorously investigating any indication of irregularities in the balance sheet.
The EY boss consciously talks about regretting not seeing the fraud sooner. That sounds like a bow, but not in a legal sense. With this formulation you do not assume any responsibility. Meanwhile, your company has been sued for damages by numerous misled investors, small and large investors. Years of legal proceedings are threatened, at the end of which the existence of the consulting and auditing firm could be threatened. Especially in the event that intentionally false evidence could be proven.
EY denies any involvement in the fraud committed by its employees. This was announced by a spokesperson for the testing company, which is one of the four main providers, at the request of SPIEGEL. According to the current state of knowledge, the audit procedures were carried out “professionally and to the best of our knowledge.” “In this context, we reject the allegations that extend to the allegation of cooperation,” the spokesman said.
Loss of important mandates
But for EY it could already be financially difficult. The first major clients have terminated their terms because they were afraid of damaging their company’s reputation due to the EY review or to avoid conflicts of interest. It is particularly painful for EY that Commerzbank has canceled it. This is partly owned by the state. Industry experts also suspect the Federal Ministry of Finance as the administrator of this federal investment behind the termination. Finance Minister Olaf Scholz (SPD) has come under considerable pressure in the Wirecard affair, especially since he is subordinate to banking supervision.
But Scholz also has to put up with accusations from the opposition. After all, he campaigned for Wirecard with the Chinese government last year. A parliamentary commission of inquiry is supposed to clear up the allegations that the Social Democrat should have stopped much earlier. There have been numerous indications of balance sheet manipulation, including by EY. In an expanded audit report for fiscal year 2018, the inspectors addressed the allegations on multiple pages but were unable to substantiate them and audited Wirecard’s balance sheet.
The Treasury secretary and his party could point to EY as the main culprit as a distraction from their own failure. Therefore, the company could threaten to lose more terms with companies that are under the influence of the state, such as Lufthansa or Deutsche Telekom. In EY, that seems to have been the deciding factor in ending his own silence.
In his letter, EY boss Di Sibio invokes his company’s centuries-old tradition in Germany and promises to be “unconditionally and uncompromisingly committed to this trust.”
