Wirecard, a German Fintech company, just lost 1.9 Billion Euros. A more accurate description is that it likely never existed.
Wirecard, a German Fintech company, just lost 1.9 Billion Euros. A more accurate description is that it likely never existed (Business Insider article). Early reports indicate Wirecard inflated revenue by round-tripping transactions. Basically creating potentially fraudulent transactions across borders to avoid scrutiny of local auditors. Fraudulent revenue can be used to increase the cash accounts on the balance sheet fooling lenders into providing more loans. How does this happen and why wasn't it uncovered sooner?
Standard auditing procedures use bank confirmations to confirm account balances but those procedures don't require inspection each and every accounting transaction. This allows companies to move money into and out of accounts before audits to inflate the balance for a point in time. It's not economically feasible to have humans look at tens to hundreds of millions of accounting transactions that occur throughout a year but reliance on a point in time balance opens the door for sketchy accounting practices.
Software can help. Solutions exist today that automate the verification of accounting transactions exist and can look through hundreds of millions of transactions in a matter of minutes providing a disposition on whether evidence exists for every single one. Auditors can focus in on only the population of transactions where evidence doesn't exist significantly improving audit quality. The challenge is that it requires a rethink of core auditing procedures that have been in place for decades. Wirecard-like situations will continue to happen until software solutions are used to automate financial verification procedures.