An Ernst & Young LLP partner said his firm fell victim to “criminals” at Wirecard AG, rejecting allegations EY didn’t do enough to uncover wrongdoing at the now defunct payment processor.
EY’s auditors reacted swiftly in February 2019 after a Financial Times report of accounting irregularities emerged, Christian Orth, EY Germany’s professional practice director, told a German parliamentary committee on Friday. The accounting firm’s review at the time found the wrongdoing was limited to Singapore and failed to uncover evidence that top managers in Germany were involved, he said.
“There was a group of criminals that managed to deceive everyone — including us at EY,” Orth said. “This has damaged EY but also the profession as a whole.”
EY, Wirecard’s auditor until the former stock-market darling’s collapse last year, has come under fire for failing to spot 1.9 billion euros ($2.3 billion) had gone missing from the payment company’s accounts. Former CEO Markus Braun denied accusations of wrongdoing until the company was forced to admit in June that the missing cash likely never existed. The company collapsed that month when EY finally refused to sign off on its books.
EY added more staff and devoted more hours to reviewing Wirecard’s 2018 audit, but there was no basis to not clear them at the time, Orth said on Friday. When signing off on their books, EY did add some language referring to the Singapore case, Orth said.
Such an addition to the audit opinion was very unusual, the executive said, adding that it amounted to a message to the broader public signaling EY’s concern.
The review of the 2019 accounts had already been affected by an FT article from October of that year, Orth said. The “turning point” came in early 2020, when EY learned that Wirecard had moved trust accounts from Singapore to the Philippines, he said.
“That’s when the fire alarm went off for me,” said Orth.
In subsequent months, EY dug deeper, interviewing Wirecard managers in Manila and the company’s business partners in Dubai, he said. EY asked Wirecard to transfer 440 million euros in four tranches to prove that the accounts existed, but the payments were put off for various reasons.
EY had been given statements from the trustees’ banks, declaring the accounts were real. But then in interviews, the lenders’ top managers admitted the certifications were “spurious,” Orth said.
EY then told Germany’s financial regulator and Wirecard’s supervisory board about its findings on June 15. Thomas Eichelmann, Wirecard’s chairman, that day asked several times whether the facts they’d uncovered were true, adding it was clear this would “pull the plug” on the company, Orth said.
Orth said that for years, the EY auditors didn’t ask for any bank statements showing that the money Wirecard claimed was in trust accounts existed. They instead relied on information from the trustees, which was in line with auditing rules, he said. The standards are currently being discussed and are likely to be modified in light of the scandal, he said.
The auditor said EY is reviewing its own work and is seeking changes where necessary.
“We don’t want a second Wirecard — and we also can’t afford it,” Orth said. “Can we rule that out with absolute certainty? I don’t think anyone can.”
