Security & Fraud

Wirecard Auditor Flagged KPMG Report, Saying It Needed 'Context'

Wirecard AG’s accounting firm said an independent report failed to account for half of the German payment company’s  revenue and all its operating profit, the Financial Times (FT) reported. 

Ernst & Young, the global professional services firm based in London, warned Wirecard that KPMG’s special audit lacked context of the company’s third-party businesses that could lead to wrong conclusions about the business at the heart of an accounting scandal that forced it into insolvency.

E&Y raised doubts because KPMG was unable to verify the existence of sources which accounted for half of Wirecard’s revenue and all its operating profit, FT reported. 

Within two months of the report, Wirecard collapsed after this third-party acquiring business, which was said to carry out payments processing for the company in countries where it lacked licenses to operate, turned out to be a sham.

Documents reviewed by FT showed the investigation by KPMG, one of the Big Four accounting firms, had been commissioned by Wirecard last fall to address concerns over the company’s accounting practices. 

In April, one day before the delayed report was published, EY auditors told Wirecard of their concerns with how the third-party business was presented.

“According to our view, the topic of third-party acquiring needs to be put in an overall context,” they wrote, according to a document seen by FT. 

“Reporting solely on KPMG’s forensic investigation carries the danger of misinterpretation,” they noted. 

In a statement to the FT, EY said: “It has been widely reported that the independent forensic investigation undertaken by KPMG was mandated by the Wirecard management and supervisory boards. EY Germany was not a party to the forensic investigation, and KPMG is solely responsible for the content.” 

KPMG and Wirecard declined to comment.

Last week, one of the unnamed jailed executives in the Wirecard scandal reportedly admitted guilt to the multi-billion-dollar fraud and money laundering case. The executive was the CEO of CardSystems Middle East, the largest unit under Wirecard’s command.

Also last week, the Federal Financial Supervisory Authority, or BaFin, the German financial market watchdog, faced criticism for its failure to investigate warnings about the payments firm and instead cast more scrutiny on accusers.

In one piece of good news for Wirecard, the High Court of Justice in London handed it a victory last week when the judge dismissed a civil suit that accused Wirecard of fraud weeks after the company filed for insolvency in a Munich court.

The lawsuit alleged Wirecard defrauded two former minority shareholders in Hermes India, the Indian high fashion manufacturer.

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