Two former auditors of the Irish unit of Wirecard, the disgraced German payments company that collapsed in 2020, have been fined and severely reprimanded by the State’s accounting watchdog for “serious” shortcomings in their audit work on the company.
Liquidators were appointed to Dublin-based Wirecard UK and Ireland Ltd in December 2020, five months after its parent’s implosion. The Garda National Economic Crime Bureau has been investigating allegations of fraud of €400 million at the business since that year.
The Irish Auditing and Accounting Supervision Authority (Iaasa) said on Thursday it has fined accountant Tony Kelly, who audited Wirecard UK and Ireland’s accounts for 2016 and 2017, an amount of €19,500. It imposed a €10,500 sanction on Alison Gray, who audited the company’s 2019 financial statements.
Both were auditor partners with a small Dublin firm called BCK, which has since ceased trading.
Iaasa said that there was a “lack of professional scepticism applied” by the accountants in the “complex audits” of the Wirecard UK and Ireland, a payment services provider for merchants, mainly operating in the online travel, gamming and adult entertainment sectors. Most of its revenues came through a so-called third-party acquiring company, called Al Alam, which supposedly dealt directly with merchants and was based in Dubai.
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Al Alam was central to whistle-blowing allegations about fraudulently inflated sales at the wider Wirecard group, which were first reported by the Financial Times in April 2019.
In 2016, 93 per cent of the Irish company’s €200.2 million of revenue was earned through its third-party acquiring business with Al Alam. The relationship with the Dubai company accounted for some 70 per cent of its €177.7 million of revenue in 2017, and 90 per cent of its €167.4 million of revenue in 2018.
The audit files for each of the three years showed that the auditors planned to carry out “walk-through testing”, which traces transactions step-by-step through an accounting system to prove that it operates correctly.
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Commenting on the audits overseen by Mr Kelly, Iaasa said: “There was no evidence of walk-throughs being performed in relation to revenue recognition. There was no evidence or no sufficient evidence of audit procedures being performed regarding post year end receipts in respect of Wirecard Bank and Al Alam.”
Iaasa said it found “no evidence” of walk-throughs performed on the audit overseen by Ms Gray.
The authority said that it could not find enough evidence that either of auditors “sufficiently understood” the workings of escrow accounts that were said to contain between €177 million and €327 million of the Irish company’s reported cash holdings over the period.
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“External confirmation of the balance was not obtained from the bank in which the funds were held,” Iaasa said in each of its separate statements on Mr Kelly and Ms Gray, adding that confirmation of funds held in the escrow account was only obtained from escrow agents, a company called Citadelle Corporate Service in Singapore, and Al Alam.
In June 2020, the Wirecard group admitted that a total of €1.9 billion that was supposed to be sitting in escrow accounts managed by Citadelle did not exist – exposing a massive hole in its financial accounts that led to its downfall.
The sanction against the two Irish accountants comes within weeks of Germany’s accounting watchdog, APAS, handing Big Four accounting firm EY, the Wirecard group’s auditor between 2016 and 2018, a €500,000 fine and banned it from taking on new audits for companies of public interest in the country for two years.
EY audited Wirecard’s accounts for close to a decade without finding big problems and has been criticised for failing to request documents directly from Singapore bank OCBC, where the trustee accounts, overseen by Citadelle, were said to be held.
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While Iaasa said that there was “a serious departure from the standards expected of a statutory auditor” in Mr Kelly’s work, it said that that the accountant’s engagement with the authority since the start of the investigation “has been exceptional”.
“The respondent’s timely admissions demonstrate his insight into the contraventions that were identified. This case relating to the respondent does not concern issues relating to dishonesty or a lack of integrity,” it said.
Iaasa said that Ms Gray had also engaged with it from the outset of its investigation and that here “timely admissions demonstrate her insight into the contraventions that were identified”.
