“In the remaining days, incoming data should be processed and taken into account,” is the official reason for the postponement. From an investor’s perspective, it was particularly important: “No evidence was found for the publicly alleged manipulation of the balance sheet,” the group continued.
Specifically, in the four business areas covered by the audit order, third-party partner business, pre-financing of receivables and the activities in India and Singapore, “there have been no substantial findings that would have required correction for the annual financial statements in the 2016, 2017 and 2018 investigation period.”
KPMG has been checking the balance sheets of the payment service provider from Aschheim near Munich since October 2019. This was preceded by a year-long debate on Wirecard’s business practices. For the final report now announced for Monday, Wirecard again promises to make it available on the homepage.
Serious allegations
Numerous serious allegations prompted the special audit. Since January 2019, the British business newspaper Financial Times (FT) has published a series of articles on opaque contracts and dubious partners of the group. Above all, the inconsistencies in the important Asian business raised bad suspicions: Has Wirecard manipulated its balance sheet?
After the pressure had risen for months, Wirecard attempted the exemption in October – and commissioned KPMG’s auditors to carry out a special audit of the balance sheets from 2016 to 2018. Today’s postponement represents the second extension of the audit period.
The group had already presented a partial report of the test results at a late hour on March 12. At that time, however, the auditors only achieved partial information about the accounting methods at Wirecard.
They only brought light into three of the four sub-areas examined. The auditors made initial relief statements on two company acquisitions in India in 2015, on financial irregularities at the Asian headquarters in Singapore and on the area of pre-financing of receivables, also known as “Merchant Cash Advance” (MCA). The group defines MCA as loans to small retailers who use the Wirecard platform for their payment transactions.
“From today’s perspective, these parts of the special investigation did not result in any substantive findings in these investigation areas, which would lead to the need for correction for the annual financial statements in the investigation period 2016, 2017 and 2018”, Wirecard had announced in March.
Problematic third parties
At that time, the auditors did not allow themselves to make any statements regarding the particularly important fourth point: the controversial third-party business – i.e. the question of which parts of Wirecard’s sales were generated with the help of external companies.
In October, the FT had posted clear doubts about cash flows via partners in Dubai and Ireland in a ten-page article. The report was enriched by internal and external documents. The focus was on Wirecard’s partner Al Alam from Dubai. This is a so-called “third party acquirer”, which handles the payment transactions in countries where Wirecard does not have its own licenses.
The essence of the allegations: According to FT, Al Alam should have generated around half of its consolidated earnings before interest, taxes and depreciation in 2016. According to the newspaper, the company from Dubai was responsible for sales of EUR 265 million and an “Ebitda effect” of EUR 173 million, according to internal documents.
According to the FT, the business of 34 key Wirecard customers was processed through Al Alam in 2016. They came from the United States, Europe, the Middle East, Russia and Japan.
As a result, the newspaper said it had tried to contact all of these business partners. Accordingly, 15 of them had never heard of the Al Alam name, six did not answer, five could not be identified, and eight of them had already stopped doing business.
Wirecard boss Markus Braun had always denied all these allegations. Now he should feel confirmed by the statement approved by KPMG that no “evidence of balance sheet manipulation” was found in the third-party business either. The mood in the group is good, reports a Wirecard manager. But KPMG wanted to be very precise.
Time-consuming examination
The special test was carried out with great effort. In the meantime, around 40 auditors rummaged through the balance sheets. These had already been approved by the long-standing group auditor EY, whose care, however, was in doubt. The audit is tricky for KPMG: Society knows that its reputation is now at stake.
Today’s “Day X” was planned for Wednesday, the moment of truth. Management hoped to finally draw a line under the accusations of the past with the publication of the test report. The fact that the publication is now postponed a second time shortly before the end after half a year of the exam shows how high the stakes are – and how far the Dax-Newcomer Wirecard is still far from the standard of other large corporations.
Why the relocation? According to insiders, KPMG also checked incoming numbers from third parties earlier this week. Wirecard now officially justifies the extension. According to groups of companies, the data with a probability bordering on certainty did not contain any greater risk for the balance sheet – nevertheless, they are not irrelevant and must be checked by KPMG.
Apparently, it is not only late-arrival data sets that cause problems. According to insiders, Wirecard is also struggling with KPMG to clarify the wording of the test report. There is relief in the most important – on the balance sheet – points, such as the allegation of so-called roundtripping, the invention of sales. Nevertheless, the auditors had made numerous negative findings, for example regarding compliance and internal processes.
Now the question is how serious the corresponding complaints in the test report were. The KPMG auditors formulated significantly more negative than expected, it is said from corporate circles. The corresponding talks continued.
Change in the supervisory board
Wirecard’s new Chairman of the Supervisory Board, Thomas Eichelmann, oversees the review. According to two people familiar with the matter, there is a change on his committee. The previous supervisory board member Susana Quintana-Plaza is promoted to the operational board of the Portuguese oil and gas group Galp Energia and leaves the Wirecard committee at the request of the Galp owner family.
The successor is apparently already certain: A “very well-known personality” should therefore take the place of Quintana-Plaza and strengthen the competence in the control committee. First, the “Wirtschaftswoche” reported on the possible exit. This should not be related to the special test.
With the coming Monday there is now a new end date for the KPMG audit. However, a third extension of the review period is hardly possible: Wirecard plans to publish its 2019 annual balance sheet on April 30. And the group auditor EY apparently does not want to test this without the final KPMG assessment for the special audit.
The payment processor can no longer afford to make mistakes. The KPMG report is sure to attract the keen attention of investors, analysts and regulators. According to insiders, he is also being studied closely by the financial regulator Bafin.
More: Alleged balance sheet fraud, dubious partner: Wirecard has been at the center of criticism for over a year.
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Photo: Licensed Fintech Lending company and registered with the OJK. (Doc: OJK)
