The Fraud Examiner

Wirecard Left Insolvent After Massive, Easily Avoidable Accounting Scandal

Mason Wilder, CFE
Research Specialist, Association of Certified Fraud Examiners                                 

Since its founding in 1999, Germany-based Wirecard managed to grow into an incredibly successful international technology firm with nearly 6,000 employees in 26 different countries and a valuation of almost $27 billion by late 2018. Months later, in early 2019, the first indications of trouble set the company on a path that led to high-profile arrests, raids by authorities in two countries (so far), the prospect of expensive shareholder lawsuits and becoming a cautionary tale of audit confirmation fraud.

Convoluted business operations including agreements with numerous third-party payment processors of dubious legitimacy have led to allegations of forgery and fraud by Wirecard personnel, which the company has denied. However, faults identified with EY’s auditing of Wirecard’s financial reporting would be difficult to attribute to Wirecard’s business practices. A failure to confirm the existence of more than $2 billion in cash supposedly sitting in banks in Asia appears to be at the center of a massive accounting fraud that reportedly lasted several years before causing the fintech firm to lose most of its value.

According to the Financial Times, rather than confirming large bank account balances claimed by Wirecard on financial statements with the banks allegedly holding the funds, EY relied on documentation from Wirecard itself and a third-party trustee when signing off on Wirecard’s financial reporting from 2016-2018. Had EY personnel worked directly with the involved banks, they likely would not have been able to confirm the existence of billions in cash claimed by Wirecard.

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