KPMG unable to verify Wirecard’s third-party profits

Wirecard announced on Tuesday that KPMG’s six-month special audit of the German payments company could not verify the genuineness of sales and profits from third parties at the heart of whistleblower allegations of accounting fraud.

The KPMG investigation was commissioned by Wirecard’s supervisory board after the Financial Times reported the allegations, which focused on three of the company’s business partners.

Wirecard’s relationship with the partners was central to the special audit, and KPMG said they “comprised the major part” of the fintech group’s operating profit between 2016 and 2018.

The FT reported in October that Wirecard appeared to have attributed billions of euros in payments processing to one of these partners, much of it under the names of clients which had ceased to exist or denied a relationship with either company. 

“KPMG was not sufficiently able to forensically trace the existence of the transaction volumes in the 2016 to 2018 investigation period,” according to the report from KPMG published by Wirecard, which said the information was held by third parties that had not co-operated with the probe.

KPMG’s examination of the third party business is ongoing, Wirecard said, and publication of annual results planned for Thursday was postponed.

The payments specialist, which replaced Commerzbank in Germany’s flagship Dax stock market index in 2018, has spent the past year fighting questions about its accounting practices and governance.

KPMG’s lengthy report, which had been due for publication last week, described an absence of original documents such as bank records, a “significant delay” in accessing material and difficulty in securing interviews with key Wirecard employees.

“Bank statements that prove the receipt of payments of about €1bn at escrow agent 1, were not submitted to us,” KPMG said.

It also pointed out that its investigators “have not been able to conclusively assess the reliability of the bank confirmations” sent to Wirecard’s longstanding auditor, EY. In some cases, KPMG had to rely on screenshots instead of original documents, the report added.

Shares in Wirecard dropped 24 per cent in afternoon trading in Frankfurt, to €100.04.

“The report still does not answer many open questions and leaves shareholders in the dark,” said Ingo Speich, head of sustainability and corporate governance at Deka Investment, one of Germany’s largest asset managers which holds a 1.3 per cent stake in Wirecard.

“Wirecard needs to act as soon as possible and finally create transparency to avert further damage,” said Mr Speich, who called for a further investigation into Wirecard’s third party acquiring.

Markus Braun, Wirecard’s chief executive and single largest shareholder, told journalists on a call on Tuesday morning that the report was a “big step forward” for the company. “There is not any reason to have even the faintest doubts over account balances,” said Mr Braun. 

KPMG did not find “incriminating evidence for the public allegations of balance sheet forgery”, Wirecard said.

With regard to the transaction volumes, the special auditors had to rely on screenshots taken from the systems of Wirecard’s business partners and minutes of quarterly talks between Wirecard and its partners. “Given the doubts over the level and the existence of the revenues . . . this evidence is not sufficient from our point of view,” the KPMG report said. 

The FT’s reporting in October focused on billions of euros of payments processing that Wirecard internal documents appeared to have attributed to 34 clients in 2016 and 2017. KPMG said it was unable to verify the existence of the 34 clients as Wirecard did not reveal their identities. 

Last year Singapore police launched a criminal probe of the group’s Asian operations. German regulators also sought to protect Wirecard from speculators, announcing a two-month ban on the short-selling of its stock.

The accounting firm was also tasked with investigating a number of other controversies, including Wirecard’s 2015 acquisition of Indian businesses where a Mauritius fund appeared to have made about €300m of profit in the €340m deal by acting as a middleman. KPMG was unable to identify the beneficial owners of the fund, the report said.

Neil Campling, an analyst at Mirabaud Securities, said: “KPMG’s report remains incomplete, Wirecard’s role in assisting in the process has been found lacking and inconsistent, internal controls are criticised and Wirecard has, once again, delayed the annual report filing and presentation.”

Wirecard has sued the FT for misuse of trade secrets in Munich relating to stories published in January and February 2019. The FT stands by its reporting and is defending the lawsuit.

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