KPMG widens review of Wirecard accounting
Special audit will now look at accusations concerning type of lending made to merchants
Wirecard revealed on Wednesday that a special audit by KPMG will be wider-ranging than previously announced, examining accusations from short-sellers about the German payment company’s lending activities in Brazil and Turkey.
Details of the probe came as Wirecard reported another quarter of the rapid growth in sales and profits which made it an investor favourite last year, catapulting the group into the prestigious Dax index of Germany companies.
The company, which also faces an ongoing criminal inquiry in Singapore into its accounting at several subsidiaries in Asia and the Pacific, last month said it had hired KPMG to examine questions over its accounting practices that were raised by whistleblowers and reported by the Financial Times.
The FT has reported suspicions that hundreds of millions of euros in sales and profits at Wirecard businesses in Dubai and Dublin were fraudulent, raising questions about the oversight provided by Wirecard’s longstanding audit firm EY.
On Wednesday the company said KPMG would also look at accusations made by short-sellers about a type of lending known as “Merchant Cash Advance”. Wirecard said last year it had put €400m into making short-term loans to its customers, with many of them being located in Turkey and Brazil.
Merchants using Wirecard to process credit card payments can wait a month to receive the money, so the product is designed to bridge that gap. However, an anonymous group of short-sellers that calls itself MCA Mathematik has raised doubts about whether the activity is taking place as Wirecard has described.
In a letter to Wirecard's supervisory board, MCA Mathematik said “the two countries in which management has claimed MCA lending is most significant — Brazil and Turkey — cannot possibly be offering any meaningful programme of this type”.
Filings made by Wirecard’s Brazil subsidiary at the country’s central bank do not describe significant MCA lending, according to MCA Mathematik. In Turkey, such advance cash loans to merchants were not legal, the short-sellers alleged, asking where money for the loans had gone.
A Wirecard spokeswoman said that MCA Mathematik’s allegations were “based on wrong assumptions which lead to wrong conclusions”.
Its MCA operations in Turkey were “structured in full compliance with all applicable Turkish regulations and was explicitly approved by Turkey’s Banking Regulation and Supervision Authority,” the spokesperson said. With regard to Brazil, the company said that while the central bank filings were correct, the numbers were used and interpreted wrongly by MCA Mathematik, they added.
Wirecard, which has categorically rejected the FT’s reporting, said that lending to merchants had fallen to about €320m by the end of September, down from about €400m six months earlier.
KPMG had already started work on the special audit, which was expected to be concluded by March 2020, with the results to be made public, Wirecard said.
Alexander von Knoop, Wirecard’s chief financial officer, told analysts that “we of course fully trust in our accounting, and the very intensive and detailed auditing by EY”. KPMG’s review “shall give additional confidence to our shareholders”.
Its latest results showed that Wirecard expects to generate €1bn to €1.1bn in earnings before interest, taxes, depreciation and amortisation in 2020, matching analysts’ expectations, according to S&P Global Market Intelligence.
For the third quarter, the Aschheim-based group reported a 37 per cent increase in revenue to €731.5m from a year ago, and a 43 per cent jump in ebitda to €211.1m.
Wirecard said that the Asia-Pacific region contributed half its sales and profits in the first nine months of the year, up from about 40 per cent in the same period in 2018. It has previously said that its own investigation of financial irregularities in the region did not uncover problems with any material impact on its accounts.