Fuji Xerox and the whistleblower
Hamish McNicol reports on concealment, a $1 million settlement, and suspected fraud which began with Tony Night.
It all started with an email from somebody called ‘‘Tony Night’’. That email, sent to executives at Fuji Xerox and Xerox Corporation on July 8, 2015, pointed out instances of ‘‘inappropriate accounting’’ at Fuji Xerox in New Zealand.
Xerox Corporation, a substantial shareholder at Fuji Xerox, replied with a please explain, and so an unnamed deputy president at Fuji Xerox began an investigation.
An audit, completed just three weeks later, confirmed what the mysterious whistleblower had said: revenue had been over-stated at Fuji Xerox New Zealand (FXNZ).
But the extent of the problem was only made public in June this year, nearly two years after the issues were first pointed out.
They revealed ‘‘inappropriate accounting’’ at FXNZ and later, Fuji Xerox Australia (FXA), had caused losses of more than $350 million.
What happened in the intervening period involved concealments, a $1m settlement, and what one accounting firm suspected was fraud.
Back to that audit in 2015, however: the deputy president, an unnamed executive vice president, and three others met in Fuji Xerox’s China office in Shanghai.
For about an hour, they discussed the audit and how the company should respond to Xerox.
The deputy president gave instructions the response should be there were no problems, and that the matter in New Zealand should be disposed of ‘‘properly’’.
This, despite knowing revenues were being overstated, as the whistleblower had said.
‘‘The instructions thus are an attempt to conceal the accounting regularities,’’ an 89-page independent report has revealed.
The response, which said no accounting irregularities were found, was also given in a report to the president of Fuji Xerox on August 20, 2015.
In the meantime, the contracts which had been causing issues were prohibited in New Zealand and Australia.
Over the following months, a new chief financial officer was brought in at New Zealand, who found a letter from an accounting firm talking about the need to recognise some losses.
A series of issues worth about $100m were found, and various discussions were had about how to recognise some losses in the books.
The large losses at FXNZ and FXA led to a review by a Singapore law firm, which pointed the finger at ‘‘overly aggressive’’ revenue recording as a result of the ‘‘sales first at any cost’’ culture led by a Mr A.
It appeared this culture also came from the very top, however: materials from 2010 emphasised the theme ‘‘mo iccho yaruzo!!’’, which translated to ‘‘achieve one trillion’’ in sales.
The unnamed Mr A was managing director of FXNZ from 2004 to 2015, and of FXA for nearly a year after that.
Mr A was then dismissed in May, 2016, on recommendation of the deputy president, but only after signing a settlement agreement to leave the firm in which he was paid more than $1m.
Mr A was later named as Neil Whittaker.
Various meetings and reports determined FXNZ was facing $70m in ‘‘legacy losses’’ on previous contracts, and in September of that year, the company posted its financial statements on the Companies Office.
They revealed a massive $51m loss for the year to March, 2016.
The deputy president and executive vice president agreed to respond to the allegations by saying they were incorrect and no inappropriate accounting had occurred.
‘‘The above instructions were given despite knowing that the response they instructed were untrue,’’ the report says.
The president of FX was starting to get suspicious that people involved in a problem might conceal a problem.
He asked for successive investigations by an internal audit and analysis department, but it was found staff were told by the executive vice president to ‘‘not rock the boat’’ and achieve a ‘‘soft landing’’.
Only in February this year did an unnamed accounting firm report to the president directly the accounting risk at FXNZ was worth an estimated $160m, after that firm had done an audit in October the previous year.
In March, 2017, the firm told FX it had ‘‘reason to suspect fraud had occurred at FXNZ’’.
‘‘It would be sending official notice on March 20 to FXNZ of its intent to conduct an investigation into the suspected fraud.’’
This all became public in April, when Japan-based Fujifilm Holdings said it had set up an independent investigation committee to review the appropriateness of accounting practices.
Early estimates put the losses at about $250m, but when the full investigation was completed in early June, losses to shareholder equity at the parent company were found to be worth $230m in New Zealand, and $121m in Australia.
They had overstated revenue by about $473m, and as a result, three executives, as well as Fuji Xerox chairman Tadahito Yamamoto, said they would resign, while many senior executives would take a pay cut.
FXNZ has been paid more than $55m for all-of-government contracts in New Zealand since 2012.
NZ First leader Winston Peters, who has been pressuring the Government on the issue, said the report ’’rips the scab off fraud rife at Fuji Xerox NZ’’.
The Government has said it was seeking reassurances about its contracts with FXNZ, but Economic Development Minister Simon Bridges, said in early June nothing he had seen to date gave him any cause for concern.
Meanwhile, FXNZ said the issues were historical and did not reflect how it operated now, after a robust corporate governance structure was put in place.
‘‘Fuji Xerox and its affiliates take the committee’s findings very seriously and is committed to resolving past issues and ensuring that there is no recurrence.
‘‘For Fuji Xerox and its affiliates, the top priority is on regaining trust from stakeholders.’’
The Serious Fraud Office said last December it would not be pursuing an investigation into the company, but a spokeswoman said last week it was obtaining additional information.
Near the end of the 89 pages on FXNZ, Tony Night’s whistleblower email, the one which started it all, appeared again.
The report said ’’Tony’’ used none of the whistleblower systems the FX group had in place.
‘‘In light of the fact that the email was sent to multiple recipients, with addresses that would not be known unless one were involved with the company, we presume that it was sent by someone in the FX Group.
‘‘We believe that it is possible that the person using the name Tony Night intentionally avoided using the whistleblower systems because they either did not know the existence of the FXNZ or FX Group whistleblower systems, or had doubts about the trustworthiness or effectiveness of the whistleblower systems, or for other reasons.’’