Introduction
Wirecard was a German payment processing company that was once worth billions of dollars. In 2020, it was revealed that the company had been involved in a massive accounting fraud that had inflated its profits and assets (Mock, 2021). The company had altered its financial statements to show higher profits and assets while hiding large debts and losses. The scandal led to the company’s bankruptcy and the arrest of its CEO. The fraud was discovered when Wirecard could not account for 1.9 billion euros of its assets (Gottschalk, 2022).
The trickery had been going on for years, with Wirecard executives creating fake contracts to disguise its losses and artificially boost its profits. The company also used shell companies to hide its debts and failed to disclose large loans it had taken out. The scandal has rocked the corporate world and raised questions about oversight of publicly listed companies.
The Accountant’s Role in Discovering Fraud
The accountant’s role in discovering fraud is essential to any business. Accountants and auditors are responsible for reviewing a company’s financial statements and detecting any irregularities or discrepancies (Van Akkeren, 2018). In the case of Wirecard, it was the accountant’s role to detect fraudulent activities and alert the authorities. The accountant should have noticed the irregularities in the financial statements, such as the inflated profits and assets and the hidden losses and debts.
The company’s auditor failed to report the fraud and, thus, faced a fine of 8.5 million euros. This is an example of how important it is for accountants and auditors to be vigilant when reviewing financial statements (Mock, 2021). They must be able to recognize any discrepancies and irregularities and take appropriate action to prevent fraud. Accountants should also be aware of the warning signs of fraud (Van Akkeren, 2018). Red flags such as unusual journal entries, irregular expenses, and large cash transactions should be investigated.
Furthermore, accountants should be aware of the company’s internal controls and ensure they are in place and functioning properly. They must also be familiar with the company’s accounting software and be able to detect any suspicious activities or irregularities (Gottschalk, 2022). Unfortunately, the accountants at the organization did not fulfill the mandates mentioned above, ultimately leading to the company’s collapse.
Accountants can also use investigative techniques such as interviewing staff and analyzing documents to uncover potential fraud. These techniques help accountants detect and prevent financial statement fraud (Gottschalk, 2022). As a result, they can help protect the company’s reputation and that of its shareholders and other stakeholders. In any organization, the accountant’s role in detecting fraud is crucial.
The accounts at Wirecard failed to be on the lookout for fraud warning indicators and utilize investigation tactics to find any potential fraud (Mock, 2021). Through their omission, they contributed to the reputational damage of the business, as well as the losses suffered by the shareholders and other stakeholders.
Illustration of the Fraud Triangle through Analysis of the Fraud Case
A fraud triangle is a tool that is used to analyze fraud cases. It consists of three components: pressure, opportunity, and rationalization. It is a useful tool for analyzing the Wirecard fraud case as it provides insight into why and how the Wirecard fraud occurred. The pressure of increasing profits and assets to remain competitive was a major factor in the fraud (Van Akkeren, 2018). This pressure motivated the company to firm the financial statements and hide the losses and debts. The opportunity was also present, as the enterprise could manipulate the financial statements, concealing losses and debts without detection. Finally, the rationalization was that the fraud would be beneficial in the long run and would not be discovered (Van Akkeren, 2018). This highlights the importance of understanding the fraud triangle in fraud cases to identify better and prevent them.
Evaluation of the Case Using the Three Prongs of the Fraud Triangle
Pressure
In the case of Wirecard, the pressure to commit fraud was the need for the company to remain competitive with other companies in the market. The company was under pressure to boost its profits and assets to stay attractive to investors (Van Akkeren, 2018). Organizational management manipulates financial statements to gain a competitive edge.
Opportunity
The company had the opportunity to manipulate the financial statements using its financial and accounting experts to hide losses and debts. It had the opportunity to create fake transactions and accounts to hide its true financial position (Van Akkeren, 2018). The firm used its expert knowledge to deceive investors and other stakeholders by misrepresenting its financial position.
Rationalization
The rationalization for the fraud was based on the desire to maintain the company’s competitive advantage by making the financial statements look more attractive to potential investors. The executive management believed that manipulating the financial statements could increase the company’s value and market share. This rationalization allowed the executive management to justify the fraudulent activities and continue perpetrating the fraud. The company presumed that the fraud would not be discovered and would eventually benefit the company in the long run (Mock, 2021). It believed that the fraud would improve its financial performance and that the risks associated with it were worth taking as the potential rewards outweighed the risks.
Conclusion on Internal Controls That Could Have Prevented the Fraud
Proper internal controls could have prevented the fraud at Wirecard. Internal controls are procedures and policies that are put in place to prevent and detect fraudulent activities (Mock, 2021). These controls should include regular reviews of financial statements, segregation of duties, and implementation of an anti-fraud program. With proper internal controls, the fraud at Wirecard would have been detected before it caused the company to go bankrupt.
In addition to the internal controls mentioned above, more stringent financial reporting and disclosure requirements should have been implemented. These requirements should have included regular and independent audits of the company’s financial statements, and the company should have been required to make public any discrepancies or irregularities in its financials (Gottschalk, 2022. This would have allowed investors and other stakeholders to be aware of any potential fraud at Wirecard and take the appropriate action.
Conclusion
Finally, Wirecard’s board of directors and management should have been held more accountable for their actions. The board should have had better oversight over the company’s financials and implemented more stringent internal controls. Additionally, management should have been held responsible for any irregularities in the financials and any fraudulent activities (Mock, 2021). By following these procedures, Wirecard could have avoided its downfall and bankruptcy.
References
Gottschalk, P. (2022). Wirecard banking by KPMG. Fraud Investigation Reports in Practice, 162–183. Web.
Mock, S. (2021). Wirecard and European company and financial law. European Company and Financial Law Review, 18(4), 519–554. Web.
Van Akkeren, J. (2018). Fraud triangle: Cressey’s fraud triangle and alternative fraud theories. Encyclopedia of Business and Professional Ethics, 1–4. Web.