Economy & Politics

ExklusivSupervisory Board raises allegations against EY in the Wirecard scandal

EY office building imago images / Sven Simon

In the Wirecard scandal, the supervisory authority responsible for the auditors raises allegations against the auditing company EY, which for years had repeatedly confirmed the group’s financial statements as proper. Internal documents of the financial supervisory authority Bafin, which are available to Personal-Financial.com and “Stern”, show that the auditor oversight office (APAS) wrote to the public prosecutor’s office in Berlin on September 28th and sent information. The information sent by APAS contained considerable allegations against employees of EY, according to an internal mail to Bafin director Elisabeth Roegele. She herself asked the employee not to refer to the APAS letter as an “advertisement”. In her opinion, “it is, but it is not labeled”, wrote Roegele in an email on October 1st.

Upon request, EY referred in a statement to a statement by the senior public prosecutor in charge of the Wirecard investigations, Hildegard Bäumler-Hösl, according to which she currently sees no initial suspicion against EY examiners. “There are no indications of any criminal misconduct by EY auditors in the Wirecard case,” emphasized EY. The “Handelsblatt” first reported on the APAS letter on Wednesday evening. EY had sharply rejected the allegations: “The Munich public prosecutor has confirmed that they have no initial suspicions against EY. Any other information would be misinformation and would result in extreme damage to reputation. “

The public prosecutor’s offices in Munich did not leave it that way. The quotation from Bäumler-Hösl published by EY is “at least misleading as it does not refer to the APAS letter to the Berlin Public Prosecutor’s Office”. The Munich public prosecutor’s office already has this process and is “currently being examined”. The statement by Bäumler-Hösl was “much more general”. The clarification formulated by EY that there was “no evidence of criminal misconduct by EY auditors in the Wirecard case” could not be confirmed by the Munich public prosecutor’s office; this was still being examined. On request, the Berlin Public Prosecutor’s Office pointed out that reports from APAS are generally forwarded to the locally responsible public prosecutor’s office.

EY employees want to remain silent

The behavior of EY has met with sharp criticism from members of the Wirecard investigation committee of the federal government. “The roof structure is on fire at EY. They are sprinkling smoke candles, ”said Left MP Fabio De Masi. His FDP colleague Florian Toncar added: “The auditor supervision APAS apparently sees serious violations in connection with the final audit. In any case, that has to make one sit up and take notice. For many of the aggrieved investors, it is the most important question of all. ”The Greens MP Danyal Bayaz also pointed out that the advice of the APAS could also affect possible claims for damages by investors. “The public prosecutor’s office is well advised to examine the APAS report very carefully,” said Bayaz.

In the accounting scandal at Wirecard, EY has been heavily criticized for weeks because the auditors had approved the annual financial statements of the Aschheim-based group for years – although there had been allegations against Wirecard for a long time. This Thursday, three current and one former EY partner are also to testify as witnesses before the Bundestag investigative committee. However, their lawyers rely on the statutory obligation of confidentiality of the auditors. In addition, the APAS is conducting professional proceedings against two examiners who were responsible for the certification of several annual financial statements.

Therefore, before the meeting of the committee it was still unclear whether the witnesses will speak up to date – although EY has assured the Bundestag that it will fully support the investigation and Wirecard’s insolvency administrator has already released the previous auditors from their obligation of confidentiality. In the past, however, courts have decided differently whether the approval of an insolvency administrator is sufficient or whether all former members of the board of directors and supervisory board must agree that auditors can comment publicly on events in the company. Therefore, the Federal Court of Justice may have to decide in the end.

KPMG special report as a trigger

As early as October 2019, the APAS supervisory body initiated preliminary investigations against the second largest of the “Big Four” global testing and advisory giants in connection with the role of EY in the Wirecard scandal. The trigger was reports in the “Financial Times” about massive bogus sales in the Asian business of the Aschheim group. After the publication of a special report by the auditing company KPMG at the end of April, the APAS upgraded the preliminary investigations against the EY employees to a formal professional supervision procedure. The KPMG special auditors, which the Wirecard supervisory board had commissioned to clarify repeatedly raised fraud allegations, had expressed doubts that Wirecard actually existed in trust accounts in Asia.

As can be seen from the Bafin documents, a key trigger for the APAS report to the Berlin public prosecutor was a non-public appendix to the KPMG special report. In this part, the KPMG auditors deal in detail with inconsistencies in a number of company acquisitions in India that Wirecard made at the end of 2015. In the secret appendix to the KPMG report, it is discussed that an internal whistleblower at EY contacted the German headquarters in May 2016 about the circumstances surrounding the EUR 340 million deal and sounded the alarm. The whistleblower’s allegations involved alleged fraud and bribery of an auditor in India in connection with the overpriced purchase of Indian companies. Their seller was a mysterious fund in Mauritius called EMIF 1A, which may have been top managers from Wirecard.

To review the allegations, the Wirecard Management Board and EY started the “Project Ring”, in which forensics experts from the auditing company were also involved. However, a Wirecard top manager whose name was accused by the whistleblower was not heard, criticized KPMG in its report. In addition, no independent third party was brought in to clarify the allegation of bribery against an EY auditor in India. The investigation was then stopped early in 2018 at the instigation of Wirecard Asia Board Member Jan Marsalek – the top manager at the center of the scandal who is now volatile and is considered one of the beneficiaries of the Mauritius Fund.

But although “Project Ring” revealed indications of irregularities in India, EY continued to sign the Wirecard balance sheets. During the review process for the 2016 annual financial statements, the auditors made it clear internally that their attestation also depends on the findings from the “Project Ring”, said then Wirecard supervisory board member Tina Kleingarn last week when she gave testimony in the Bundestag. According to her, there were complications during the exam for the 2015 and 2016 financial statements. In both cases, the unqualified attestations were only “just” and “at the last minute”. In contrast, since the Wirecard bankruptcy at the end of June, EY has repeatedly emphasized that the auditors themselves were massively deceived by the management. In addition, EY ultimately uncovered the fraud with its own audit procedures and the refused certificate for 2019.

Steady exchange of information with authorities

The Financial Times reported for the first time on September 30th of this year about the secret “information volume” on the KPMG report and the statements contained therein on alleged omissions at EY. The Bafin documents state that APAS did not submit this annex to the financial supervisory authority until September 29th. The day before, APAS had sent the “information volume” and other non-public attachments to the KPMG report as an attachment to a letter to the Berlin public prosecutor. From the Bafin internal correspondence it emerges that the Federal Ministry of Finance was also unaware of the “information volume” up to the publication of the “FT” report – which also raises questions about the exchange between the authorities involved, APAS and Bafin, as well as the two higher federal ministries.

For EY, the consequences of the Wirecard scandal are increasingly becoming a severe test. In addition to the investigations by the professional inspectorate, there are also several lawsuits brought by investor lawyers in Germany and the USA. In addition, there is a possible deterrent effect for new business with public and private customers. Out of anger about the alleged refusal to give evidence in the investigative committee, some MPs had recently brought a halt to orders from the federal ministries for the advisory arm of EY. Such an order freeze would definitely hurt the company, as EY is one of the leading consultants to the federal government – for example, currently in the Corona crisis. For example, the Ministry of Health has just awarded EY a follow-up order worth almost 20 million euros to deal with the chaos of protective masks.

In addition, prominent EY clients such as Commerzbank and the investment company DWS have decided to reassign their mandates for the final audit. Since the Wirecard bankruptcy, the EY management has repeatedly emphasized publicly and to customers that it will provide comprehensive and unrestricted support for the investigation of the scandal.


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