How did Wirecard misplace 1.9 billion Euros?

The German payments giant has filed for insolvency following its auditor’s refusal to sign off the accounts having been unable to locate a missing 1.9billion euros. Wirecard confirmed on Monday that the 1.9billion probably never existed and its CEO has now been arrested.

Wirecard was launched as a start-up in 1999 and joined Germany's prestigious Dax 30 share index two years ago at a valuation of €24bn. The company experienced rapid growth in Asia working through a number of third party companies. It now seems that bank accounts in the Phillippines were forged as part of an elaborate and sophisticated fraud.

The missing funds represent about 25% of the company’s balance sheet and the company's shares have crashed almost 100% in the last week, giving it a stock market valuation of less than €400m. 

A subsidiary in the UK, Wirecard Card Services Limited was incorporated in 2011 and according to the latest filed accounts had net assets of ￡30m. In the absence of any intercompany loans it is possible the UK company may escape relatively unscathed although the liquidator in Germany is likely to seek a purchaser for the share capital.

In a recent development this afternoon the FCA has suspended the EMI (electronic money institution) licence for the UK arm thereby suspending all payments using pre-paid cards issued by Wirecard meaning many of the more vulnerable people in society cannot access their cash. Hopefully, this is only a temporary measure.

It would seem the warning signs had been there for some time but what’s surprising is that the German regulator failed to investigate allegations of financial irregularity last year. It was the financial press as well as short sellers of the company’s stock who appear to have detected evidence of fraud . Shares in the firm fell by as much as 22% last October after documents concerning suspicions of fraudulent accounting were published. Files appeared to show a concerted effort to fraudulently inflate sales and profits at Wirecard businesses in Dubai and Ireland, as well as to potentially mislead Wirecard’s auditor, EY.

The auditor’s refusal to sign off the accounts has exposed a potential fraud on an enormous scale although there are still plenty of questions to be answered. As we emerge from the current pandemic it is more important than ever for businesses to be alert to fraud detection and prevention. 

bm-advisory.com