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Wirecard scandal: EY auditor and supervisory authority reproach each other


For years, the EY auditors audited the balance sheets of the scandalous company Wirecard without hesitation. The supervisory authority Apas has therefore reported EY to the public prosecutor. But the accused defend themselves.

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EY building in Berlin


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A bankrupt Dax company, missing billions and a former top manager on the run: the Wirecard scandal has caused immense damage - and the search for the culprits of this economic disaster is becoming increasingly dirty.

A competition has long broken out between the authorities and the various federal ministries to assign responsibility to one another.

The long-standing Wirecard auditor EY (formerly: Ernst & Young) and the supervisory authority Apas play an important role in this - they are now clearly clashing.

According to SPIEGEL information, the auditing company EY defends itself in a letter to the Munich public prosecutor and the Apas against serious allegations that the supervisory authority had made against EY.

Apas reported EY employees to the Munich public prosecutor's office and listed where and when EY made mistakes when checking Wirecard's balance sheets.

That was the case for the 2015, 2016 and 2017 annual financial statements.

From the Apas' point of view, there were even indications of criminal offenses.

The prosecution does not comment on the complaint or the EY reaction.

In the six-page reply from EY, which was also sent to Apas and which is available to SPIEGEL, it now says that EY wants to support the "professional supervisory work" of Apas and in the Wirecard case "as best as possible and cooperatively".

At the same time, one wants to "highlight some points as examples that show that a complete knowledge of the facts is necessary in order to arrive at reliable conclusions".

In the explanations, the EY lawyers accuse the Apas of relying on "incorrect assumptions" and of making "incorrect premises".

The timing of the EY advance should not be a coincidence.

This Thursday, the Apas is the focus of the parliamentary committee of inquiry, which is working on the Wirecard scandal.

The MPs question their head Ralf Bose and other employees and want to know whether they have fulfilled their control function over EY.

Because even the inspectors of the inspectors did not cut a good figure in the affair.

Dubious deal in India

The Apas recently made serious allegations against EY.

From the point of view of the supervisory authority, EY made a particularly difficult mistake when it came to auditing the Wirecard annual financial statements for 2016 and 2017 and taking an extremely dubious issue into account.

An internal whistleblower had told EY that the takeover of the Hermes Group in India by Wirecard for around 340 million euros did not go well.

To this day, the accusation is in the room that the purchase price was far too high and Wirecard managers could have enriched themselves.

At that time, EY initiated an investigation under the name of "Project Ring", the doubts about the deal and its accounting were considerable, so EY is said to have threatened in a letter of March 29, 2017 that it would only issue a limited certificate for 2016.

In the end, however, the auditors gave the degree their blessing.

This is exactly where Apas's criticism comes in: it accuses EY of having "only obtained explanations and information from ... management ... until the time an unqualified auditor's report was issued" for the 2016 balance sheet as further audit procedures.

According to the EY defense, this is not the case.

By the time the attestation was issued on April 5, 2017, the audit team had received "extensive and factual information, explanations and documents or data deliveries" which "relate to the whistleblower's allegations".

Among other things, the forensics team, which was responsible for the "Project Ring" at Wirecard, reported to the team of auditors about data deliveries from Wirecard manager Edo Kurniawan.

On the basis of this data, the forensics team announced that they saw themselves "in a position to close numerous open points for the moment".

A year later, however, the problem with the Hermes deal was still not resolved, the "Project Ring" investigation continued, and EY once again asked whether the certificate could be issued for the 2017 annual financial statements.

But then Jan Marsalek intervened.

The Wirecard board member at the time, responsible for business in Asia, stated in an email to EY on April 3, 2018, that the events surrounding Hermes had been checked and that there were no indications of any misconduct by Wirecard employees, the case was closed, Project Ring finished.

We would like to thank EY for the »always transparent and highly professional analysis«.

Shortly afterwards, EY issued the unqualified certificate.

Meet in Manila

Apas criticizes the discontinuation of »Project Ring« and accuses EY of incorrectly claiming the attestation under the annual financial statements, »that the audit forms a sufficient basis for the assessment, so that the audited financial statements provide a true and fair view of the assets. , Earnings and financial position would reflect «.

EY doesn't want to let that sit on her.

In the letter to the public prosecutor's office, the EY representatives now argue that "Project Ring" and the final examination are two separate processes.

The team of auditors had "planned and carried out independent audit procedures that dealt with all issues relevant to the audit".

The audit team was therefore not dependent on the assessment of the stage at which the “Project Ring” was.

EY will not comment on further allegations of the Apas until the company and its lawyers have had full access to the files.

Then EY also has to deal with the accusation that it misjudged the proceeds from the supposedly so profitable, but apparently partly non-existent business with third-party partners.

For a long time, Wirecard handled business with third-party partners via trust accounts, which EY is said to have initiated itself in 2015. 

A record of the competing auditing firm KPMG now suggests that EY even advised to set up such accounts.

Accordingly, Christopher Bauer, the now deceased head of Wirecard partner company PayEasy, said at a meeting in Manila in March 2020: "This change was recommended by the annual and group auditors of WD (Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft)." the meanwhile fugitive deputy boss Jan Marsalek and the EY partner Martin Dahmen were present.

According to the KPMG note, Dahmen did not object.

However, at the time in question in 2015, the manager had not even dealt with Wirecard.

Wirecard should have had an incentive to refer the third party partners to EY when they switched to trust accounts, because the new system was a deterioration for the partners.

EY would have violated the law by advising on the trust accounts, since an auditor is not allowed to advise at the same time.

In its interim report on EY, Apas has not yet raised any such allegation.

Inactive apas

In another point EY even goes over to the attack on the Apas and holds the professional inspectorate a wrong legal understanding.

Apas falsely accused EY of violating reporting obligations under the Auditor Ordinance.

The background is a call from EY Germany boss Hubert Barth and EY partner Christian Orth on February 13, 2018 at Apas.

They reported on possible irregularities in the Wirecard accounting in Singapore.

On the part of the Apas, the entire management team around authorities chief Bose took part in the conversation.

Article 7 of the Statutory Auditor Ordinance provides that auditors raise the alarm to the relevant national authorities if they encounter irregularities in the audit process.

But the Apas did nothing in response to the EY call. 

In its report to the public prosecutor's office, the professional inspectorate alleges that the auditing company should have sent such an Article 7 report to the public prosecutor's office, and that failure to do so could even be punishable.

The EY lawyers point out that Germany has not yet regulated which body an auditor should turn to if he encounters irregularities in the accounting of a company.

The Institute of Auditors, which represents the profession, refers the auditors to the Apas in cases of doubt.

The legislature also indirectly admits such a confusion of jurisdiction: In the draft for the Financial Market Integrity Strengthening Act (FISG), with which the federal government wants to improve supervision after the Wirecard scandal, it is now said for the first time that auditors should contact the financial supervision Bafin and only at Report suspected criminal offenses to the law enforcement authorities.

In fact, the EY managers' call for help at Apas was not formally an Article 7 report.

Such a report can only be made if the company in question demonstrably does not cooperate in the matter at hand.

However, Wirecard had commissioned a law firm in Singapore to investigate the allegations in the room at the time.

Nevertheless, the question arises why the Apas apparently did not react in any way and instead now accuses EY of not having called the public prosecutor's office.

If the Apas receives information that could be relevant for other supervisory bodies such as the Bafin, it must pass it on.

It did not do so because such information was not obtained from the conversation with EY, as the Apas told SPIEGEL last September.

Investigations are likely to drag on

With its resolute approach, does the Apas divert attention from its own failures?

"Apas' supervision of the EY checks at Wirecard AG was not as flawless as the authority and its responsible minister Altmaier have previously shown," criticizes Danyal Bayaz, chairman of the Greens in the Bundestag's investigative committee into the Wirecard affair.

One thing is clear: since 2016, the supervisory authority had not looked more closely at whether EY was working properly when checking Wirecard's annual financial statements, even after the phone call in February 2019. 

Over the years, there have been repeated allegations that the payment processor is inflating its sales and profits.

Year after year, Apas takes random checks on corporations and their auditors.

Of course, the public does not find out what the result is.

Even if the supervisory authority finds errors in the auditors, it only reports briefly and without naming names at the end of the year about misconduct and sanctions it has imposed.

At EY and Wirecard, Apas only initiated preliminary investigations in October 2019, when the Financial Times stated in several articles that large parts of the business dealt with via alleged third-party partners may not even exist.

After a few days, however, the Apas stopped working again, they wanted to wait and see what would come out of a special audit of the Wirecard balance sheets by EY competitor KPMG.

After KPMG submitted a devastating final report at the end of April, the Apas finally entered into a formal supervisory procedure, which has now resulted in a complaint to the public prosecutor's office.

However, it will be some time before the investigations of the Munich public prosecutor's office against the EY examiners really pick up speed.

The investigators, under the leadership of the department head Hildegard Bäumler-Hösl, proceed from the inside out when dealing with the scandal.

First, they want to clarify whether and to what extent the Wirecard managers around the alleged main culprit Jan Marsalek actually committed balance sheet fraud and who in the group was involved.

Only then can you seriously investigate the question of whether EY and others deliberately helped with the falsification of the balance sheet.

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Source: spiegel

All business articles on 2020-12-09

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