The accounting woes of German digital payments company, Wirecard AG, appear to be deepening. The company said in a statement on Monday that there is a “prevailing likelihood” that the 1.9 billion euros ($2.15 billion) missing from its accounts had never existed in the first place.
Wirecard first announced the missing funds last Thursday, in a notice that stated its auditor Ernst & Young could not locate evidence of the cash balances in question. The money amounts to about one-quarter of the firm’s total balance sheet assets. There was evidence that false bank statements were created “in order to deceive the auditor and create a wrong perception of the existence of such cash balances or the holding of the accounts for the benefit of Wirecard group companies. The Wirecard management board is working intensively together with the auditor towards a clarification of the situation,” the company said in the statement.
Wirecard had formerly stated that banks in the Philippines were holding the funds, but the nation denied ever having the cash enter its financial system. The company has delayed certifying its most recent financial statements and may have to pay back 2 billion euros ($2.26 billion) in loans, leading to a potential insolvency.
CEO Ouster
Wirecard’s CEO Markus Braun stepped down as CEO last week and was arrested in Germany today with accusations of inflating the company’s balance sheet. Before stepping down, Braun said in a video statement that “it cannot be ruled out that Wirecard has been the victim of a substantial case of fraud.” James Freis, former chief compliance officer of Deutsche Boerse AG, was named as interim CEO. He had been scheduled to take the reins of the newly created “integrity, legal, and compliance” office, but was elevated to the top spot instead after Braun’s departure.
Wirecard has been in trouble since 2019, when the Financial Times reported Wirecard’s suspicious transactions in Singapore with the help of a whistleblower. The company denied the allegations. The FT reported again late last year that Wirecard is suspected of inflating profits and sales in Dubai and Ireland, but an April investigation by KPMG was inconclusive because the company did not provide enough information to the audit firm. Now allegations are centering on the idea that sales and profits at numerous Asian subsidiaries of Wirecard were simply invented.
The company said that it hired investment bank Houlihan Lokey to come up with a new financing strategy in face of possible collapse if the loans are terminated. 
Stephanie Liu is assistant editor at Internal Audit 360°