Wirecard – are they round-tripping revenues to hide missing cash flow?

Hiding accounting fraud requires explaining why reported profits fail to deliver cash flow. Our previous work used regulatory and audited filings to demonstrate that Wirecard claims about MCA business are untrue. Our continued research suggests that Wirecard may be using other means to disguise a lack of cash flow. Fraud can be hidden by overpaying for acquisitions, executive loans against stock holdings being funnelled back into the business, fake earnings from offshore (un-audited) entities and more.

Investors should be asking – what is Wirecard hiding?

HomeEY – Wirecard Finance have been laughing at youEdo’s EY accountingScope of KPMG investigation

Turkey – Tiny AND Illegal

July 18, 2019

Wirecard claims that at least 1/3 of its supposed €400M MCA program comes from Brazil and Turkey, with Brazil being the larger. Nonetheless, Wirecard is claiming that there is at least some meaningful lending, and subsequent revenue, from this business in Turkey.

WRONG!

Wirecard Turkey’s own audited (by Deloitte) financials shows that the MCA business there is tiny. As notable, in the entire report, there is not a single mention of MCA.

Download the 2018 audited annual report:

Download report in EnglishDownload report in Turkish

For the purposes of MCA lending analysis, we look at the balance sheet where we would expect to see a significantly lower payables balance than receivables.

However, in Turkey, receivables at year end were less than €2m (11.0m TRY, Note 4), while payables were €5m (29.6m TRY, Note 4). Rather than MCA lending, it’s clear the business is in fact holding a reserve, which would protect against default by high risk merchants, mostly in the travel industry where payments might subsequently be reversed by card issuers if the merchant goes out of business.

Tiny AND illegal

As it turns out, MCA lending is illegal in Turkey. View our legal opinion showing wirecard's mca product is illegal in Turkey.

Our work on the ground in Turkey suggests Wirecard are offering some small volumes of MCA to wireless carriers and mobile app vendors. The lack of disclosure in this audited report suggests they are misleading both Deloitte and the Turkish banking regulator (BRSA). Revenues and TPV in 2018 were only €2.4m / €61m which shows the business can only support tiny volumes of MCA – but this is not disclosed in the annual report.

We have informed the banking regulator in Turkey (BRSA) and we believe they will be looking into this imminently.

Summary

The lies keep piling up. There’s no meaningful MCA lending in Brazil. Similarly, there’s little in Turkey and what there is, is illegal. So where is this €133 million? Are they lying about it to mask a lack of cash flow?

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