The local arm of a global corporation run as a fiefdom, massive salaries and humungous commissions paid to top staff including family members, with fabricated sales, made up monthly numbers, and a silencing of those questioning the recording of figures, compounded by a head office in Tokyo that was focused on its own issues, dazzled by the booked sales results and at best ignored repeated warnings – these are just some of the revelations of the newly released full investigative report by Fuji Xerox parent Fujifilm into its Fuji Xerox Australian and New Zealand businesses.
The translated 356 page report is the full version of the 89 page report released two months ago, and is damning expose, holding nothing back as it examines the consequences of what it says was a ‘sales at any cost’ culture.
It reads as an epic tale of a giant corporation with its eye off the ball outwitted for several years by a dominant personality and fabricated numbers in far off markets – New Zealand and latterly Australia.
Stand out revelations include 70 per cent of contracts having inappropriate revenue accounting, $30m of sales in 2015 simply made up, salaries – even before huge commissions were added –triple the industry average, the top salesman earning an eye watering $1.1m a year, of which $800,000 was incentives payments, and the son of the CEO earning $740,000 a year, of which more than half $420,000 was incentives. Losses to shareholder equity were $230m in New Zealand and $121m in Australia, after revenue was overstated by $450m.
The investigative report says the problem began with managed service agreements (MSAs) in New Zealand which had variable pricing but were accounted for as upfront revenue. The report alleges there followed a litany of abuses including recording fictitious sales, recording sales twice, recording promos and giveaways as sales, and selling clients new contracts even at the beginning of existing contracts just to record extra revenue.
[Related: Fuji Xerox bosses apologise to staff]
The report says that inappropriate revenue recording became so prevalent that it was a constant practice in New Zealand and occurred in 70 per cent of all contracts through a six year period. It says that by 2015 some 30 per cent of New Zealand recorded revenue was inappropriately recorded, and of this almost $30m was simply fictitious.
Fuji Xerox is now having to write off some $450m from its accounts for what it says are accounting irregularities that took place during the period Neil Whittaker was CEO of the company in first New Zealand then Australia. Fuji Xerox parent Fujifilm which commissioned the report and has annual global revenue of around $26b has been forced to delay its annual report and accounts.
The Fujifilm investigative report says that the company ignored warning of possible frauds occurring, covered up some of the accounting irregularities, and did not provide appropriate governance.
The issue became too big to ignore when the deputy president at head office received an email from a Fuji Xerox New Zealand whistleblower ‘Tony Night’ on July 8 2015, two months after Whittaker had left New Zealand for Australia. The email spelled out specific cases of inappropriate accounting practices involving the use of inflated target volumes for the MSAs.
Head office seems to have been locked in a cultural straightjacket, with the deputy president – one of several senior directors since sacked – unwilling to tell the president there was a problem.
The report reveals senior management in the Fuji Xerox Australia and New Zealand businesses hit targets by bringing revenue forward, simply did not recognise losses, and just made up the numbers in the monthly accounts. Then to cover up what were missing millions it counted asset sales as revenue.
The report says the main actor, the so called Mr A – named by New Zealand MP Winston Peters as Neil Whittaker – took steps to restructure the local company to give power to the sales department and weakened the financial and legal departments. It says he ‘applied pressure to dissenters and created an atmosphere where opposition was impossible’.
The report says at the same time as the accounts were being manipulated Tokyo was focused on its stagnating domestic sales, and ignored repeated warnings over the behaviour in its ANZ markets, and rather was entranced by what appeared to be stellar results there. It says warning bells were sounding in Tokyo as early as 2009, but were ignored. The report says that as late as 2015 the company was in denial that there were any serious issues, and that the company president was told there were no problems.
Describing some of the dynamics that enabled the abuses to occur the report says, “Control functions were not effective and transparency was lacking because the reporting lines to the parent company and others in the group were all limited to Mr A, centralising the flow of information.
"In such a situation, and given the lack of effective supervision of Mr A it was easy for the execution of business by Mr A to run out of control."
The report also says that in pursuit of sales credit checking was minimal, clients with shaky foundations were okayed as good for credit, with credit checks taking place in less than one in ten companies.
The fall out from the scandal is immense and ongoing. Several of the Fuji Xerox top directors in Japan have been shown the door including four of the five senior executives – the chairman, deputy president, deputy vice president, and senior vice president – with the rest all taking a 20 per cent pay cut. Its auditors were sacked, sales have dipped and the company is in voluntary suspension from selling to New Zealand government bodies amidst a fraud investigation. Neil Whittaker and salesman Dean Murray resigned following an unannounced audit, from regional HQ, several senior Aussie staff including chief financial officer Devlin Bell and chief people officer Beth Winchester left shortly after. A number of long time senior staff in the production print division including national sales manager Mick Gillies and Sue Trelfo subsequently left the company.
As in the first report the full report did not name names, it refers to Mr A throughout. The CEO during the period in question was Neil Whittaker, who resigned from his position at Fuji Xerox Australia last May following the unannounced audit, and received a $1m payoff for his troubles.
The report also says ‘business development manager E’ was on a $1.1m annual salary, with some $800,000 of that incentives-based remuneration. The person in question is not named.
Speaking to ProPrint in Australia this week Fuji Xerox president Hiroshi Kurihara– here to apologise to staff – says the company may yet sue, although he was unwilling to name who it would consider going against, it has taken legal advice and is currently considering its options. Kurihara also says that Fuji Xerox customers including commercial printers have not and will not be paying more as a result of the scandal.
The report says that five of the nine sales executives Whittaker brought over to Australia with him from New Zealand were on salaries way in excess of the local pay scales. The salary differential was widely known to be a cause of major discord at the time in the Australian company.
In addition the report revealed that the son of Mr A had an annual salary of $740,000, which included bonuses of $420,000. Other revelations included regular $1000+ lunches, the use of company credit card for personal cash, and family trips on $43,000 of company money.
Fuji Xerox to its credit has been transparent in its investigation, going so far as to publish the report, all 356pp, in English. Speaking to ProPrint the Fuji Xerox president president Hiroshi Kurihara said the company has now taken all steps to ensure that its governance is watertight, and has created a new position of chairman of Fuji Xerox Australia, whose main role will be to ensure compliance. In addition ts accounting and audit operations will be merged with Fujifilm’s by September, and legal departments will also be integrated.
Sunil Gupta, brought in as CEO in Australia following Whittaker’s departure says, “The issue is now behind us. We have corrected our procedures and processes, and put systems in place to make sure this is no longer part of our business. Ethics and integrity are the foundation of our business.
“Our focus now is on our customers. Fuji Xerox is now a solutions and services business. We have positioned the company to enable our customers to be those who benefit from the digital disruption. We are focused on helping our customers significantly improve their performance and productivity, and therefore their profitability.”
Commercial printers represent around a third of the Fuji Xerox business. It remains the market leader in Australia. Gupta says, “We are driving forward with innovation that will see our customers at the forefront of the market in existing and emerging opportunities. The graphic communications sector is our priority number one.”
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