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A German investigation has found that EY audits of the defunct Wirecard payment group suffered serious deficiencies over a period of years.
The Big Four firm is said to have detected no fraud risk indicators, failed to fully implement professional guidelines and, on key issues, relied on verbal guarantees from executives.
A special investigator who examined the EY audits came to a true opinion on the quality of the work, according to people who know the report first hand. The researcher was commissioned by the Bundestag parliamentary committee in Berlin to examine the accounting scandal and had access to internal AE documents.
The report, presented to the Bundestag later this week, will significantly increase the problems of the accounting firm. EY already faces Wirecard shareholder and creditor lawsuits. The legal actions of the Wirecard administrator are likely to continue.
EY partners who signed Wirecard accounts are already being investigated for possible violations of the rules on the exercise of professional functions. Earlier this year, the accounting firm replaced its leadership in Germany and announced an organizational reshuffle.
“The report explains the failures during the EY audits as professional standards were not met,” Matthias Hauer, a member of the conservative parliamentary group CDU / CSU, told FT, suggesting the appointment of the researcher. special. He added that the report confirmed that “EY has a significant responsibility so that the scandal has not been discovered before.”
Wirecard received unqualified audits from EY for a decade and was once hailed as one of Germany’s technological success stories. That fell into insolvency last summer after revealing that “1.9 billion euros in cash did not exist”.
A team of Rödl & Partner auditors led by Martin Wambach, the parliamentary special investigator, excavated 90 gigabytes of EY data that included internal working papers and 40,000 emails.
The review found that EY assessed in detail Wirecard’s outsourced operations in Asia, which are at the heart of the fraud. However, the auditor was not concerned that day-to-day operations in the so-called third-party acquiring business (TPA) “deviated substantially from contractually defined business processes”.
In addition, EY did not detect a number of fraud risk indicators, including unusually close links with its Asian partners, as well as high and growing margins in a business that had lower added value than Wirecard’s core business. Rödl & Partner rejects Wirecard’s argument that higher profitability reflects that the TPA business carries a higher risk; points to the fact that higher risk never resulted in financial losses.
“From our perspective, there were numerous indicators of fraud risk with respect to the TPA business that could have increased the critical attitude and could have triggered new acts of audit,” the special investigator concludes.
Rödl & Partner, like KPMG in its special audit last year, also contrasts with the fact that the money deposited in deposit accounts in Asia was treated as Wirecard cash. He notes that EY’s assessment of the matter was “contradictory”, as internal documents showed that the firm initially wanted to treat the money as “other financial assets”.
EY subsequently changed its mind on the grounds that Wirecard could access the funds within three months on condition that it could obtain a bank guarantee. The accounting firm stated internally that, thanks to its financial strength, Wirecard could obtain this bank guarantee at any time, but EY did not verify this proposal during its audits.
Rödl & Partner also noted that the balance confirmations of the deposit accounts repeatedly suffered inconsistencies, such as different Wirecard subsidiaries attributed to the same accounts.
“He [Rödl & Partner] the EY report is the equivalent of the KPMG report on Wirecard. Its language is technical, but its content is devastating, “said Jens Zimmermann, a Social Democrat MP.
Fabio De Masi, left-wing MP Die Linke, said: “EY had a deep understanding of the TPA illusion and it was even his brain,” adding that it was not surprising that the business was not properly audited. “For me, the question is whether EY didn’t want to find out anything.”
Rödl & Partner did not immediately respond to FT’s requests for comment.
EY said that its German arm had not been provided with a copy of the Rödl & Partner report and therefore could not comment on its contents.
“Collusive fraud acts on Wirecard were implemented through a highly complex criminal network designed to deceive everyone: investors, banks, supervisors, investigative lawyers and forensic auditors, as well as auditors,” he said. dir EY
“We have supported the Parliamentary Commission of Inquiry (PIC) and will continue to do so. We also welcomed the PIC’s decision to consult audit experts and fully cooperated with special investigators in their work.
“Based on our information, EY Germany auditors performed their audit procedures on Wirecard professionally, to their knowledge and in good faith.”
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