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Wirecard bankruptcy: the failure of the auditor

DGermans fell for a huge fraud. Until June 18, Wirecard was considered a beacon of hope for the economy, which had made it into the German share index Dax. The group was worth twelve billion euros. The payment service provider filed for bankruptcy on Thursday. Wirecard is now worth 176 million euros.

It is now clear that much of the fantastic story was made up. The name Wirecard stands for the largest balance sheet fraud the Dax has ever experienced.

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The company is said to have built up bogus credit on its balance sheet for ten years, claim anonymous bloggers who have long pointed out the inconsistencies and published masses of internal Wirecard documents. Today, her theory sounds more credible than the statements made by CEO Markus Braun and his colleagues about the business.

Martin Dahmen, Andreas Budde, Andreas Loetscher and Ralf Broschulat should have noticed that too. As an auditor, you have approved Wirecard AG’s balance sheets since 2013 and signed the corresponding attestations. All four were or are partners of Ernst & Young, which is now only called EY.

Holes in the balance sheet are probably even larger than previously known

The tests of these men and their assistants are the starting point for a huge system failure. Authorities, financial market professionals and thousands of retail investors have relied on the fact that the business figures that documented tremendous growth are correct. They probably weren’t.

On Monday, the new Wirecard boss James Freis had to admit that balances in the amount of 1.9 billion euros did not exist in the balance sheet for 2019 “with a high probability” and that parts of the business did not take place as his predecessor Markus Braun claims .

The holes in Wirecard’s numbers are likely to be even bigger. Otherwise the company would not have filed for bankruptcy. The banks were actually ready to initially keep the company alive with a credit line of EUR 1.75 billion. Nevertheless, “the continuity of the company is not guaranteed,” writes Wirecard.

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The Dax group Wirecard has filed for bankruptcy– – – – –

It is speculated that the group could have made losses instead of the reported millions in recent years. The finance scene industry service draws up a detailed invoice for this. But apparently nobody noticed that for years.

“Because of cases like Wirecard, the statutory final exam was introduced in its current form. That was in 1931, after the bankruptcy of the Darmstadt National Bank, which also reported assets that did not exist, ”says Michael Gschrei, head of the Association for Small and Medium-Sized Auditing, which represents auditors beyond the four large companies. “90 years later, we have not progressed yet.”

The fact that this thriller could happen under the eyes of all inspectors has a lot to do with the system in which examiners such as Dahmen, Budde, Loetscher and Broschulat work.

All four have spent almost their entire professional lives at EY, two of them switched to other employers in 2018. The scene is small. You know each other and you know your supervisors. This applies especially to the partners at EY, KPMG, Deloitte or PwC, the so-called Big Four.

The scene is small and intertwined

It is often criticized that companies not only check, but also advise. Alumni, who remain connected through alumni clubs, are at the center of power. Dax mandates bring prestige.

“There are numerous conflicts of interest among the auditors. They are paid by the companies they are supposed to check, ”says Fabio De Masi, deputy left-wing parliamentary leader in the Bundestag. In addition to the failure of the authorities, he criticizes that the liability of the auditors is too low. In fact, the gentlemen of EY are threatened with modest penalties: The German Commercial Code capped “the obligation to pay compensation for people who acted negligently” to four million euros per test. For everyone together.

EY denies all guilt. At Wirecard, “there is clear evidence that it is a comprehensive fraud involving several parties around the world and in various institutions with deliberate intent to deceive,” says EY. “Even with extensively expanded audit procedures, it may not be possible to detect this type of conspiratorial fraud.”

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“Wasted structures” – – – – –

By 2019, could no one substantiate the allegations that had been made again and again? This question would have to be answered by an authority that was set up in 2016 by the Federal Office of Economics and Export Control according to EU guidelines: the auditor oversight body (APAS).

She is the successor to a similar commission at the Chamber of Public Accountants. By 2016, the profession had controlled itself almost completely. Many examiners from the chamber are said to have moved to the APAS.

Gschrei doesn’t like that. “For the Big Four, criminal law applies in Germany as it does for the church: They check themselves and they sanction themselves,” he complains.

Criminal law like in the church

There is another parallel: secrecy. “The subject of every supervisory procedure is subject to APAS ‘comprehensive confidentiality obligation,” the agency said. Nobody should know whether the EY examiners are being examined. After all, the consequences of misconduct can be drastic: “APAS can impose occupational supervision measures against auditors.” This includes reprimands, fines and prohibitions on activities up to and including exclusion from the profession. Does that actually happen? Secret.

The German Accounting Office (DPR) also operates in the dark. In the event of suspicion, it checks whether there are errors in a balance sheet – and reports them to the BaFin financial supervisory authority. The Federal Government drew the first consequences here: The Federal Ministry of Justice and the Federal Ministry of Finance will terminate the contract with DPR, a spokesman for the Ministry of Justice confirmed a report by “Bild am Sonntag”.

In addition, there are the money laundering investigators at customs, who may also investigate against Wirecard – of course secret.

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Trust in Germany is at least damaged, says WELT author Nando Sommerfeldt– –

Consequences of the Wirecard scandal – – – – –

The system is hooked. So far, BaFin has argued that it is only responsible for checking bank balance sheets. “BaFin needs a more open mandate,” says De Masi. “Centralization doesn’t solve everything, but we need some kind of general supervision. Otherwise, as in the Wirecard case, the authorities will blame each other. ”

Auditors, it is often said, have a reputation and cannot afford to make mistakes. That really happened in 2002: after the bankruptcy of the energy trader Enron, which had inflated its balance sheet like Wirecard, the group auditor had to close his business: Arthur Andersen. The Big Five became Big Four. In this country, a large number of the Andersen people found a new employer: EY.

This text is from the WELT AM SONNTAG. We are happy to deliver them to your home regularly.

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Source: WamS

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