Auditors, eh?June 27, 2020 Tim WorstallBusiness16 CommentsEY failed to check Wirecard bank statements for 3 years Difficult to believe but….. previousAnd now we remind you of an English clichenextSnippa iz black now 16 thoughts on “Auditors, eh?” aaa June 27, 2020 at 9:31 am Well, it’s not that they didn’t check bank statements. Do banks even send physical statements any more? No, the charge is that they relied upon screenshots and/or images of the bank account balances on computer screens. The key defence against these sorts of shenanigans is to seek confirmation directly from the third party bank. And that’s what EY didn’t do. Most auditors will tell you seeking direct confirmation is a major league pain in the arse. Banks often try to say they don’t have permission to write to the auditor, even when they do. And they often refuse to give information about any bank accounts other than the specific numbered accounts the auditor asks about. This makes the process totally pointless, because the company could have an undisclosed overdraft with that bank, but the bank won’t tell you about it. Often when the bank does reply, their reply is inaccurate or is missing accounts you have asked about. So you have to ask for the information again. What EY did isn’t right. But it’s certainly understandable. I’d fix this kind of problem by passing a law to make it mandatory to respond promptly and to the best of your knowledge and ability to third party auditor requests. Bloke in Germany June 27, 2020 at 9:51 am Mini Enron. My little company (threads passim) had to pay for independent bank confirmations for every audit, every year. No excuses. Lots of people in lots of institutions on the unofficial payroll, I suspect. Gamecock June 27, 2020 at 10:14 am Paywalled. What’s an EY? CJ Nerd June 27, 2020 at 10:27 am Gamecock: EY is Ernst & Young, a big accountancy/audit firm. And for the Financial Times(FT), you can get round the paywall by copying and pasting the headine into Google, which will then take you past the paywall and into the story. RichardT June 27, 2020 at 10:29 am Bank confirmations – and indeed all confirmation of balance sheet assets – seems to be regarded as frightfully old-fashioned by the modern auditor. It seems to be all about investigating processes and ‘benchmarking’ these days. Bloke in Germany June 27, 2020 at 11:06 am You can’t rule out that a company has off balance sheet debts with q bank they have not declared to the auditor. Maybe that means we shouldn’t bother looking out for fraud. We should just have the experts ban djort selling and raising criminal charges against journalists instead. Alternatively this might mean a second big accountancy firm gets closed down for being too deep in its clients pocket, and another regulator gets replaced for the same reason. dearieme June 27, 2020 at 11:17 am I knew an accountant who was Bursar of a Cambridge college. I found out that his idea of a stocktaking of the cellar was to look at the list from the previous stocktake, add all the bottles that he believed had been delivered and subtract the bottles he believed had been drunk. A friend knew a different Bursar, also an accountant. He lied. He lied like Slick Willie – naturally, habitually, convincingly, and even when he had no discernible reason for lying. Lying was just what he did. I suppose this comment could go under either the E&Y post of the Eejit from Ely post. Bloke in North Dorset June 27, 2020 at 12:28 pm Well, it’s not that they didn’t check bank statements. Do banks even send physical statements any more? No, the charge is that they relied upon screenshots and/or images of the bank account balances on computer screens. When I had one my business account allowed me to down load pdf statements. The same when I went to work for one of my clients and became a bank signatory, our accounts team downloaded statements for us to check the accounts. They also went to our auditors. IIRC the account also showed if overdrafts were available. allthegoodnamesaretaken June 27, 2020 at 1:01 pm “When I had one my business account allowed me to down load pdf statements.” I suspect a multi billion € bank might be a bit more complex… Gamecock June 27, 2020 at 1:22 pm Thx, CJ. Grikath June 27, 2020 at 1:55 pm “When I had one my business account allowed me to down load pdf statements.” You actually want the CSV files, and a proper Database Analyst versed in Excel/Access and whatever Financial Suite an organisation uses…. Did a couple of …interesting.. freelance gigs Finding the Missing Money for people. Couple of days of proper queries on the raws tends to turn up the Pain Points. Now.. this was just for NCO’s and municipalities cycling 10’s of millions, but the process isn’t any different if you add a couple of zero’s. And of course, the method also shows the mistakes the fancy-pancy Auditors/Managers make/made, so it makes you reeeely *cough*popular in certain circles.. asiaseen June 27, 2020 at 3:02 pm The auditor of a private company I worked for in Singapore 20 years ago managed to miss that the sole shareholder (a UK solicitor) had diverted a 1.5 million pound commission into his private account – as indeed, did the taxman. EY have a very dubious record in Hong Kong: https://webb-site.com/dbpub/articles.asp?p=5346 Evident June 27, 2020 at 8:35 pm @Gamecock Full Article “EY failed to check Wirecard bank statements for 3 years Auditor of insolvent payments group under fire for failing to detect fraud Olaf Storbeck in Frankfurt, Tabby Kinder in London and Stefania Palma in Singapore June 26, 2020 EY failed for more than three years to request crucial account information from a Singapore bank where Wirecard claimed it had up to €1bn in cash — a routine audit procedure that could have uncovered the vast fraud at the German payments group. The accountancy firm, which audited Wirecard for a decade, has come under fire after the once high-flying fintech company filed for insolvency this week, revealing that €1.9bn in cash probably did “not exist”. People with first-hand knowledge told the Financial Times that the auditor between 2016 and 2018 did not check directly with Singapore’s OCBC Bank to confirm that the lender held large amounts of cash on behalf of Wirecard. Instead, EY relied on documents and screenshots provided by a third-party trustee and Wirecard itself. “The big question for me is what on earth did EY do when they signed off the accounts?” said a senior banker at a lender with credit exposure to Wirecard. A senior auditor at another firm said that obtaining independent confirmation of bank balances was “equivalent to day-one training at audit school”. OCBC declined to comment. A person briefed on the details told the Financial Times that Wirecard has no banking relationship with OCBC and that the fintech’s former Singapore-based trustee does not have an escrow account with the bank. The lender did not receive any query from EY in relation to Wirecard between 2016 and 2018, the person added. The Big Four accounting firm had issued unqualified audits of Wirecard for a decade despite increasing questions over suspect accounting practices from journalists and short sellers. An “out of country” team at EY is reviewing the work carried out by its German auditors, according to a person close to the firm. The German accounting watchdog FREP is probing Wirecard’s balance sheet, and the country’s auditor oversight body APAS has begun looking into EY’s work. EY declined to comment on the regulatory investigation and details of its work. FREP and APAS declined to comment. The accounts at Asian banks play a pivotal role in Wirecard’s accounting fraud that culminated in the group filing for insolvency on Thursday. According to the company’s former management, the accounts were used to settle transactions with partners who acted on Wirecard’s behalf in countries where it did not have its own licences to process electronic payments. Yet it is now unclear if the accounts — let alone the money allegedly deposited there — ever existed. Wirecard had told its auditors that the money moved late last year from OCBC to banks in the Philippines, where supposedly there was now €1.9bn deposited. A special audit by KPMG could not obtain original documents from the banks to prove deposits existed. EY was told this month by the banks that paperwork it had previously seen on the Philippine accounts was “spurious” and they did not exist. The head of audit at a rival accounting firm to EY said: “It is beyond the realms of reality that EY wouldn’t have had [the bank balance confirmations] unless they did a very poor audit. Cash is easy to audit. If investors can’t trust the cash number, what can they trust?” In a statement issued on Thursday, EY said there were “clear indications that this was an elaborate and sophisticated fraud, involving multiple parties around the world in different institutions, with a deliberate aim of deception”. The company argued that “even the most robust audit procedures may not uncover this kind of fraud”. Hansrudi Lenz, professor of accounting at Würzburg university, told the Financial Times that it was “not sufficient” for an auditor to rely on account confirmations that were provided by third parties. “The auditor needs to have full control over the delivery of account confirmation,” he said, adding that this was stipulated by procedural guidelines. Germany’s small shareholder lobby group SdK on Friday said it filed criminal complaints against the EY auditors who signed Wirecard’s accounts between 2016 and 2018, accusing them of violating professional duties. Accounts published by Wirecard showed that five different EY partners signed its accounts over the past five years. Among them is Andreas Loetscher, who co-led EY’s audits into Wirecard between 2015 and 2017 and a year later joined Deutsche Bank as chief accounting officer. Deutsche Bank said: “There are many open questions with regard to Wirecard. We highly appreciate our work with Andreas Loetscher. Moreover . . . the presumption of innocence of course applies to him as well.” EY is already facing a class-action lawsuit in Germany brought by Wirecard investors. Wolfgang Schirp, a Berlin-based lawyer who is working on the case against the audit firm, said: “It is frightening how long Wirecard was able to operate without being objected to by the auditors. We have been monitoring Wirecard since 2008 and have collected very extensive material. It was always clear that something was wrong.” Akshay Naheta, a SoftBank executive who led an investment in Wirecard last year, attacked EY on Twitter last week. “I’m totally baffled by the lack of competence and responsibility displayed by E&Y,” he wrote. “As an organisation that is meant to protect all stakeholders — creditors and shareholders — in companies, both public and private, they have materially failed in their fiduciary duties.” For years EY has said it wants to expand its roster of clients on Germany’s DAX 30 index as it audits fewer companies than its rivals KPMG and PwC. EY earned nearly €10m for its audits of Wirecard over the past decade. The Wirecard fraud is one of several international accounting scandals that have emerged on EY’s watch this year, including at NMC Health and Luckin Coffee. Additional reporting by Stephen Morris in London Copyright The Financial Times Limited 2020. All rights reserved” https://www.ft.com/content/a9deb987-df70-4a72-bd41-47ed8942e83b Gamecock June 27, 2020 at 9:58 pm Thx, Evident. Back in the day, I dealt with Arthur Anderson/accenture. A good friend worked for Coopers & Lybrand. Members of the Big 6. Looks like we’re headed for the Big 3. Grikath June 28, 2020 at 6:18 am Evident: “The Big Four accounting firm had issued unqualified audits of Wirecard for a decade despite increasing questions over suspect accounting practices from journalists and short sellers.” When verifying the relative security of an investment check if the chickens are panicking, or the monkeys flinging poo…. aaa June 28, 2020 at 7:01 am @BiND “When I had one my business account allowed me to down load pdf statements” I believe that’s what EY are accused of relying upon, rather than verifying directly with the bank. @BiG “You can’t rule out that a company has off balance sheet debts with q bank they have not declared to the auditor.” Correct. Unfortunately, bank confirmations aren’t a lot of use, if fraudsters are very determined. Leave a Reply Cancel replyYour email address will not be published. Required fields are marked *Comment Name * Email * Website Save my name, email, and website in this browser for the next time I comment.