TL;DR: The Financial Times is reporting top accounting firm Ernst & Young (EY) “between 2016 and 2018 did not check directly with Singapore’s OCBC Bank to confirm that the lender held large amounts of cash on behalf of Wirecard,” the Germany-based payments giant under fire for €1.9 billion in cash missing. “Instead, EY relied on documents and screenshots provided by a third-party trustee and Wirecard itself.”
Ernst & Young Caught Sleeping
A saga thought to be only weeks old is, on further analysis, years in the making. At least that’s the latest revelation in the ongoing crash of Wirecard after a routine audit by well-respected firm EY found €1.9 billion unaccounted for. In the days since, more information and links to prior audit problems and battles between Wirecard, accounting agencies, and even the Financial Times (FT) itself, revealed glaring irregularities and red flags.
Wirecard AG’s board released a statement this week, seemingly shocked to admit “that there is a prevailing likelihood that the bank trust account balances in the amount of 1.9 billion EUR do not exist.” Over the weekend veteran CEO Markus Braun turned himself-in to Munich prosecutors on charges connected with the missing funds, and rumor has it still more Wirecard executives are being sought.
Now, sources are telling the FT Oversea-Chinese Banking Corporation (OCBC) was never consulted about whether Wirecard, a premier debit card backer in the world of cryptocurrency, for example, actually had any of the amounts it claimed. “Instead, EY relied on documents and screenshots provided by a third-party trustee and Wirecard itself,” the FT explained. OCBC is a legacy multinational banking and financial services corporation, around for roughly a century in various forms, with assets nearing half a trillion dollars. Moody’s and Standard & Poor’s rate it among the most trusted in its class.
Such traditional reputation-trading is, of course, a fragility capable of causing overconfidence — the kind EY is accused of relying upon in the case of Wirecard, if the FT’s allegations prove true. Apparently, EY’s routine audits of Wirecard over a decade lapsed into simply taking the company at its word for three years toward the end, when simply “a routine audit procedure […] could have uncovered […] vast fraud at the German payments group,” the FT noted.
Aspects of the story turn stranger still as OCBC’s relative silence in the present matter prompted one FT source to insist “Wirecard has no banking relationship with OCBC and that the fintech’s former Singapore-based trustee does not have an escrow account with the bank,” which might explain why it wasn’t asked for documentation.
The actual scenario is further complicated by the relationship Asian banking practices play in the likes of Wirecard, as “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,” the FT elaborated. Combined with that knowledge, maybe there were no actual funds because there were no actual accounts, and Wirecard’s sending auditors to as far away as the Philippines was little more than a wild goose chase of distraction. What was once thought to have been a payments provider scandal might well turn into a legacy finance and accounting firm scandal.
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