An independent investigation into accounting irregularities at Fuji Xerox New Zealand has uncovered similar ‘improper practices’ at Fuji Xerox Australia. Parent company Fujifilm Holdings estimates the losses will total $A450 million.
At least four executives at Fuji Xerox in Japan, including the chairman, are stepping down following the investigation.
Fujifilm, which owns 75% of Fuji Xerox, estimates total losses from improper accounting at its Australasian units of ¥37 billion ($A450 million), up from the original ¥22 billion ($A260 million) estimated in April.
President and COO Kenji Sukeno and other executives gave apologetic bows at a news conference to announce the findings. "We will strengthen corporate governance at Fuji Xerox," Sukeno said.
An independent team of lawyers and accountants appointed to investigate accounting practices at the Australasian subsidiaries found that both Fuji Xerox NZ and Fuji Xerox Australia had inflated revenue figures associated with certain leasing transactions. The investigation found that Fuji Xerox NZ boosted its sales numbers by realising them prematurely, and that this was done because there were financial incentives for the managing director and employees of FXNZ.
“At FXNZ, the board of directors did not function effectively, there was a concentration of authority with the MD of FXNZ and the business management process lacked transparency,” said Fujifilm in a statement.
The audit concluded that Fuji Xerox managers had overstated revenue by a total of 37.5 billion yen, or about $A450 million, in the five years through 2016.
In a statement released late Tuesday, Fuji Xerox Australia said it "takes the committee's findings very seriously and is committed to resolving past issues and ensuring that there is no recurrence. Fuji Xerox (Japan) will renew its management structure and discuss counter measures to ensure the group to adhere to the highest standards of corporate governance. For Fuji Xerox and its affiliates, the top priority is on regaining trust from the stakeholders.”
A whistleblower inside Fuji Xerox, whose name has not been released, initially identified problems at the New Zealand unit in 2015, according to a report in The New York Times:
How much a customer pays Fuji Xerox for a leased photocopier depends in part on how heavily the customer uses the machine. When the billings fell short of projections, managers in New Zealand and Australia reported inflated numbers in order to meet revenue targets, the committee of investigators found.
Under the MSAs, sales equivalent to the price of the copy machines are recorded as a single sale as a capital lease upon installation of equipment during the fiscal year, and following that, the sales price is recovered as a copying service fee determined by multiplying the copy unit price, determined according to the monthly target volume, with the actual number of sheets copied.
Consequently, there were many transactions where receivables could not be recovered because, among other things, the copy volume did not reach the target set at the time of executing the contract and the minimum usage fee was not clearly set, and that became constant practice.
Fuji Xerox announced the resignations of Tadahito Yamamoto, the chairman; Haruhiko Yoshida, a deputy president; and two directors, Katsuhiko Yanagawa and Jun Takagi. They will leave their positions June 22. Shigetaka Komori, chairman and CEO of Fujifilm Holdings, plans to take on the dual role of chairman of both the parent company and Fuji Xerox. Senior executives will also take temporary pay cuts of between 10 per cent and 30 per cent.
New Zealand’s Serious Fraud Office said it intends to ‘review’ the independent report.
“There has to be something rotten in New Zealand when what could potentially be one of the country’s largest corporate frauds has seen the government, the establishment, and law enforcement deliberately bury their heads in the sand," said NZ First leader Winston Peters.