High-flying German payments processing firm Wirecard collapsed after $2 billion in its accounts were found to be fictional. Its auditors, Ernst & Young, might have uncovered the fraud sooner if they’d been more diligent about a process called bank balance “confirmation.”
Among the most startling revelations of the alleged accounting fraud that has led to the collapse of German fintech company Wirecard is that the company’s auditors, Ernst & Young, may have failed, for three years running, to confirm money Wirecard said was in a Singapore bank account actually existed.
That shocking nugget, first reported by the Financial Times citing anonymous sources with firsthand knowledge of the interaction, led one senior auditor at a rival accounting firm to note that confirming bank balances was “equivalent to day-one training at audit school.”
But Brian Fox, a former CPA who is the founder and president of Confirmation, a network that enables auditors and banks to electronically certify account balances, says he’s not surprised that EY may have failed to correctly verify the bank balances.
While verifying bank balances is indeed Auditing 101, Fox says, the problem is that too often auditors simply rely on the contact information for the bank that the client supplies. “When I was an auditor, I never checked a mailing address or fax or an email, and no one ever told me to do that,” he says.