30th August 2017
It has been a rough year so far for Fuji Xerox group. The New Zealand subsidiary of the Japanese multinational firm has been through an accounting irregularities scandal earlier this year. The scandal, triggered by a whistleblower in 2015 according to stuff.com, lead to an investigation, which lasted several months with a shocking result of inappropriate accounting since 2011.
Fujifilm Holdings reported that it found FXNZ conducted some inappropriate accounting from 2011 to 2016 by overstating revenue by about $473 million. The issues caused shareholders to lose their equity at the parent company, worth $230m in New Zealand and $121m in Australia.
Fuji Xerox highlighted the fraud as its internal control problem and inadequacy of its management system. One of the irregularities included some lease agreements’ accounts being wrongly recorded and resulted in revenue overstatement.
“Consequently, there were many transactions where receivables could not be recovered because 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”, read the report. However, what was more shocking was that such actions became a constant practice.
Because of the company’s structure of incentive like commissions and bonuses, to reach sales targets, it urged employees’ emphasis on sales, which is presumed to have caused an inappropriate early sale recognition practice to continue.
Moreover, there were also problems with effectiveness of the FXNZ management team, with its managing director having concentrated authority and lack of transparency in business management process.
As the news broke, it is to both the public and employees’ dismay that the group was involved in such unprecedented issues. While MD of the New Zealand office Neil Whittaker was paid to leave, Fuji Xerox chairman Tadahito Yamamoto, along with three executives, resigned. Many senior executives also took a pay cut.
A Fuji Xerox NZ spokesman said that the company would continue to lead the market with strong support from the shareholders and ensured its top priority on regaining trust from all stakeholders.
In July, Fuji Xerox president and representative director Hiroshi Kurihara and other top executives travelled to Auckland in efforts to rebuild trust and underline commitment to the New Zealand market. The company also hosted a communication meeting internally with staff from across the country in which they were introduced to many standard practices in order to comply with its mother company.
As lessons learned, the appropriate practices for contracts to resolve such issues were addressed, including more standardized practices in accounting and finance functions, more accurate performance evaluation and incentive schemes, and the reorganization of lease business function. The staff also learned about good practices of corporate compliance which could help strengthen corporate governance and audit functions. A new risk management framework, whistleblower systems, and measures were implemented as well to enhance the company’s performance.
Kurihara said that the scandal brought a great shock that risks losing trust from its customers, especially the NZ government. Thus, it is the company’s urgent mission to emphasise the importance of compliance to employees and that revenue and profits are not everything. And to regain the once spoiled good reputation, everyone in the company needs to take a strong action in a fair manner.