Artificially inflated figures at Fuji Xerox Australia and New Zealand have been discovered as part of an independent investigation into inappropriate accounting commissioned by parent company Fujifilm, with total losses blowing out by 70 per cent to $450m.

Several Fuji Xerox directors left the company after the announcement, including Tadahito Yamamoto, chairman of the board; Haruhiko Yoshida, deputy president and Katsuhiko Yanagawa, executive vice president.

Masashi Honda, president of the Asia Pacific arm, and Keiji Somata, full-time auditor also left, while Tetsuya Takagi, corporate vice president has been demoted.

Two Fujifilm directors have had a pay reduction, while a significant portion of the Fuji Xerox corporate team have had bonuses and pay cut.

Fujifilm says, “The accumulated impact of the inappropriate accounting regarding our consolidated subsidiaries on the net income on a consolidated basis of the Company for the past few years has become a loss of ¥37.5bn from a loss of approximately ¥22bn.”

The Independent Investigation Committee hired by Fujifilm pointed out Fuji Xerox’s inadequacy in corporate governance, alongside incentives from management for inaccurate reporting of print figures.

Sunil Gupta, Managing Director, Fuji Xerox Australia says, “We are committed to rectifying this situation and putting our focus back on our customers, which remains our top priority. Our customers and business partners should be assured this does not affect our ability to meet our business commitments.”

Fujifilm says the losses were due to poorly executed master service agreements (MSAs) in Australia and New Zealand.

FXNZ introduced MSAs that bundled together equipment sales and maintenance services, whereby equipment fees, consumables fees, maintenance fees and interest were recovered through a monthly copy service fee at the time of equipment sales.

Under 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 first fiscal year, and following that, the sales price is recovered as a copying service fee determined by volume.

In order to record contracts as capital leases, stipulated conditions must be satisfied, however, all transactions were recorded as capital leases, regardless of whether or not they met the conditions.

One such condition was that the recovery of a minimum payment of lease fees can be reasonably expected and that there is no uncertainty that additional costs that could not be recovered from the lessee will arise.

There were many transactions where receivables could not be recovered because the copy volume did not reach the target set, and the minimum usage fee was not clearly set. This became a constant practice.

Similar accounting practice was conducted at FXAU.

Both companies were investigated for accounting practices in a five year-period leading to 2016 during which Neil Whittaker was in charge. Whittaker left abruptly in May 2016.

Fuji Xerox Australia says, “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.

“To this end, Fuji Xerox (Japan) will renew its management structure and discuss countermeasures 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.”

This past year has seen a high turnover of staff at Fuji Xerox, including directors, product marketing managers, and sales managers.

When Fujifilm first announced its investigation, NZ politician Winston Peters, leader of the New Zealand First party called for a government inquiry into Fuji Xerox NZ. These calls have grown louder, with NZ’s Serious Fraud Office (SFO) saying it will review the report. It has previously looked at Fuji Xerox and determined there was no case to answer re fraud.

As the committee's full report is currently only available in Japanese, AP will follow up when an English translation is released.

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