Wirecard is a payment service that offers merchants credit cards and digital payments,
whether in their stores, online sites, or even on mobile platforms.
According to a report from the Texas Society of CPAs written by Trimble and Sankara
(2022), most of Wirecard’s revenues came from 300,000 small customers coming from
countries with unregulated and unlicensed online payment processing. Transparency in
reporting and auditing was not a compliance requirement in these areas. According to
estimates, approximately one-third of sales and 80% of earnings were counterfeit. Other
several manipulation practices were committed by the firm which include (a) overstated
intangibles wherein they bought small payment processors and falsify gross profits to
avoid impairment testing from auditors, (b) related party transactions where they
acquired an Indian processor from a company partially owned by Masalek, (c) round
tripping where they transfer funds around within an entity to demonstrate the
advantageous situations required by licensing authorities and lenders in different
countries, and (d) falsification of evidence wherein the firm fabricated communications
and contracts about technology transactions and client contracts to exaggerate their
numbers.
The fraud committed by Wirecard has caused significant losses for investors, businesses,
and individuals. Braun was arrested and was able to file for bail amounting to $5.7M. He
was arrested again along with other Wirecard executives for committing commercial
gang fraud and market manipulation. For investors, the firm’s market share value
dropped by 99.84% of its 2018 value causing their investments to be beyond
recoverable. German and Japanese banks lost $3.7B worth of funds due to the fraud
committed by Wirecard’s executives. These irregularities in accounting reports also
prompted a reexamination of the German accounting laws and auditing companies.
Even EY as their auditors faced consequences in which the executive handling the
Wirecard account were investigated.
Practices that should be done to avoid such fraud date back to their accounting and
reporting processes. There must be a corporate policy that mandates the transparency
and accuracy of all accounting reports and must be in compliance with any jurisdiction
in which the processing resides. Since auditors only rely on what the company can
provide in terms of evidence or supporting documents, all accounting entries must be
validated and attested by internal and externally sourced parties which also complies
with ethical accounting principles. Relevant certifications on online payment processing
and adherence to industry standards (e.g., PCI-DSS) must be in place and imperative
across the company.