The people of Mozambique have been battered by devastating cyclones and an increasingly virulent armed insurgency in the north of the country. The backdrop is a country battling State Capture. This involves a coterie of corrupt politicians, multinational corporations and international banks.
In previous instalments of the Unaccountable series, we wrote about the role of Credit Suisse and VTB Capital in megalooting in Mozambique. This week we turn our attention to the complicity of one of the Big Four auditors, Ernst & Young.
EY: Crisis on crisis
Ernst & Young (EY) is no stranger to corporate scandal or audit failure. Open Secrets covered some of this in Unaccountable 00019: EY- Incompetent, Negligent or Criminal. Hot on the heels of their dubious role as auditors and consultants at the now defunct Lehman Brothers, EY is again facing another credibility crisis. The firm is embroiled in one of Germany’s biggest financial frauds since the end of World War II – Wirecard.
Last year, fintech company Wirecard collapsed when it was unable to confirm the existence of €1.9-billion in cash. Yet for 10 years up until this moment, EY consistently approved Wirecard’s financial statements/accounts. This was despite many reports from short-sellers and journalists questioning the company’s third-party acquiring (TPA) businesses in Asia. These TPAs were at the heart of the missing (non-existent) €1.9-billion.
In a scathing report following an investigation by the German Parliament, EY is said to have missed serious errors in Wirecard’s accounts, raising questions about its due diligence and its ability to apply the auditing principle of professional scepticism. According to the report, EY failed to spot fraud risks, did not implement professional guidelines, and in an outrageous departure from basic auditing practice, EY relied on verbal assurances from executives rather than original documentation.
Given the numerous lawsuits against EY in connection with its auditing of Wirecard, including a class action by investors, and the questions about EY’s unquestioning audits – it is perhaps prudent to ask questions of the mysterious role of EY’s auditing and consulting arms in Mozambique’s own massive fraud – the tuna bond scandal.