Please write at least three examples of what Toshiba could have done in order to have prevented this fraud. Read this article:
BIG FRAUDS |Analysis of headl ine fraud cases By Steve C. Morang, CFE, CIA, CRMA by Makiko Yamazali, February 14, at tinyurl.com/jaqz2gs These Toshiba in temal reports In Toshiba's scandal, blame samurai code expression "honesty is the be st policy In other words "itpays to be honest. By contrast, Inazo Nitobe, the Japanese agricultural economist, au thor, educa tor, diplomat and politician, wrote in his book, "Bushida: The Soul ofJapan poor decisions, which led to many of Toshiba's current troubles Unfortunately the Wall Street suggested Westinghouse's controls had been "insufficient and the company Journal editorial argu es, it seems that many of the executives-who were embedded in the organization's DNA as it committed years of phony account ing-were also critic al experts on howithandled strategically important needed to con sider if Westin ghouse (2007,IBC Publishin gl. "If it is followed because it brings in more cashthan false hood, I am afraid Bushido would T senior managers exerted "inappropriate pressure" during discussions overa US deal to buy the company at the heart of its cost overnuns, according to he Toshiba Corporation has 2015 accounting scandal An independentinve stigation into Toshiba's finances, which sparked the initial erisis discovered the fim's top struggled since at least 2008 to meet its financial targe ts In 2015,the company made a shocking admission: Becau se of its struggles Toshiba had committed a multi-ye ar the Reuters aticle. One of the main challenges when applying Western stan- dards to Japanese corporations is the vast difference in the role of national cultures in the business environments. executives set un realistic profit targets which systematically led to the falsi fication of figures on the company's financial statements accarding to the We judged that itwould take about a month for ex- $122 billion accounting fraud that cul- minated in the resignation of CEO Hisao Tanaka in July ofthat year. What made temallawyers. to conduct these further probes and for the independentauditors toreview the results, Toshiba said. In total, the campany announced losses ofs6.5 bil- around18.4 billion yen, he declared the Financier Worldwide article. scale of the loss was "so embarrassing decisions. Losing these key executives seems to have weaken ed the mana ge- ment team to a degree that current management, along with investors and other stakeholders, are now talking about survival instead of corporate gov rather indulge in lies!" Bushido, the "Way ofthe Warrior is the code of conduct ofthe samurai. (See the Ency Going back to 2005, divisional CEOS at Tosh iba appear to have unrea- this most surprising was that Toshiba had been perce ived as "a totem of thatwecannot announce it Accord ingly Toshiba's staff falsified accounting records and deleted the loss from the sonably pressureddivisional managers which set the managers up for unat tainable financial targe ts. Because of this pressure, many divisions decided to adopt question able accounting tactics and skillfully hide iregularities fram the company's auditors. However, a whistleblower complaintin early 2015 brought the issue to light, which ended a seven-year deception by the compa ny's senior management-described by the investigative panel as both "system atic and "deliberate, according to the Financier Worldwide article lian in the wake ofthis new scandal-a strong and virtuous Japanese corporate clopaedia Britan nica, britannica.com/ topic/Bushido. We must understand how Japan's top-down culture facilitatescorporate misconduct. Japanese public corpora tions have structures similar to public corporations in the US.- they have shareholders, boards of directors and Write-downthat wipes out its share halder equ ity and will drag the group to books. The company instead reported a profit ofaround soo milion yen governance. (See "Tosh iba: be hind the numbers, Financier Worldwide, October a full-year loss. Finally now peaple are start- 2015, at tinyurlcom/jztvnwn) Although Toshiba's management The investigative panel wrote: "There existed a corporate culture at Toshiba where it was impossible to go against emance. Indeed, what good is excellent carporate governance if an organ izat ion has a negative equity position? ing torecognize thatinternal control problems, the accounting issues and governance issues are very real and no longer abstract. They impactthe viabil ity of the company" said Zu hair Khan, an analyst atJefferies in Tokyo, in the Reuters article. and board of directors have made the boss' will significantefforts to improve internal controls and corporate governance pro Withholding bad news, fear of peaking up, the inability to address pressures in a timely manner-these are the dominant themesarising out Additionally the panel's report drew attention to a systematic involve ment including by top management and "a deliberate attempt to inflate the appearance of net profit, according to gramssince its2015 admission offraud, newissues raised in late 2016 andearly 2017 show that the organization still corporate executives. However, they tend to be more responsive to the ofmedia reports on Toshiba's latest woes With these new allegations, any confidence that was restored in senior interests of the ir corporate execu tives than their shareholders, which is based on the Japanese tradition of makoto- part of the Bushido, the samurai code. (See the academic struggles with ethical problems and po the Finander Wor ldwide article tential side effects of the 2015 scandal. Fraud's impact on long-term survival According to a February 22 Wall Street Joumaleditorial, "Lessons of the Toshiba Meltdowm, (tinyurl.com/ zepvogm) the author believedthat these losses couldbe attributed to management has been lost. Inves- Toshiba's staff committed multiple accounting crimes, from overstating prafits to booking them too early- and everything in between, according to How can Toshiba, an iconic brand 2017 crisis tors are leaving in droves, its stock price has plummeted and Toshiba is close to being delisted from the Tokyo exchange, according to the Wall St reet Joumal editorial. known around world, continue to paper, "Reining in a Culture of Fraud, by Kevin Engleberg, Emory Corporate Did the internal clean-up go too far? Fast forward to February 14 and Toshiba isn't mailing Valentine's Day cards Instead, it has delayedannouncing quarterly results initially saying it is "not ready" then announcing later that itneeds more time to investigate a subsidiary-its Westingh ou se nucle ar business-after intemal reports have such seriousfalse accou nting issues?How can fraud, dece it, lying and cover-ups be the modus operandi of arespectedintemational corporation an investigative report citedin the Fi- nancier Worldwide article. The criminal Governance and Acrountability Review volume 3, issue 3, 2016, Emory Univer sity, tinyurLcom/ingfuzm Engle berg writes thatmakoto means to "properly dischar ge all of one's obligations so that everything will flow smoothly and harmony will be maintained and above everything behavior appears to have been signifi- that employs close to 200,000 employ eesworldwide? In this analysis, rilexamine the root cau sesof Tosh iba's corporate gov emance shortcomings that led to the documentedaccounting fraud and that threaten the survival of the organiza tion today. cant, pervasive and langstanding. Much of the false accounting probably began under Atsutoshi Nishida during his reign asCEObetween 2005 and 2009 according to the investigators The investigative panel noted that in 2008, when Nishida heard that the Toshiba's purge of senior-level execu- tives after the 2015 accounting scandal came to light. Although Toshiba was lauded for taking steps to improve its Understanding Bushido's impact One of the main challenges when ap plying Westem standards to Japanese carporations is the vast difference in the role of national cultures in the busi- uncovered poten tial accounting is carporate governance structure, a pos sible unwanted side effect of the purge else, even truthfulness and honesty Englebergisquoting from the aca- demic paper, "The Olympus Scandal sues according to the Reu ters article Delays confusion as Tosh iba re ports S6 billion nuclear hit and slides to loss, wasthat less-experienc ed, newly pro motedmiddle managers made several nessenvironments. For example, in Westem cu ltures we have the common company was hea ding for a loss of BIG FRAUDS Analysis of headline fraud cases and Corporate Govemance Reorm: Can Japan Find a Middle Ground betwe en the Board Monitoring Modeland Man- agement Model?" by Bruce E. Aronson, tinyurl.com/ouzysw) In other words, social harmony is best achieved through conformity and obedience to authority. Furthermore, makoto can create a leadership com gets hammered down." (See "Scandals Soil Japan's Corporate Giants by Julian governance to avoidupsetting or de sta- bilizing the social order of things. These cultural beliefs and concepts provide insightasto how the Olym Ryall South China Moming Post, Nov. 22, 2015, tinyurl.com/isiy84n, as quoted in Engleberg's paper.) pusac counting fraud, Japan's largest lown accounting scandal, persisted Therefore, "groupthink" is one of the prime directives ofJapanese business culture, Engleberg writes. (He refers to the academic paper, lympus for almosttwo decades, and why it was the company's non-Japanese CEO- Michael Woodford, whos from England mandchain that re sembles a military hierarchy inwhich topexecutives give the orders and all lower-level employees are expected to dbediently follow them without question, according to Aronson asquoted in Engleberg's paper Understanding the se valu es reve als Carporation Financ ial Statement Fraud -whoultimately blew the whistle and exposed the fraud. (See "The Re al Cost af Choosing Truth Over Self: 2012 Cliff Robertson Sentinel Award Recipient Michael Woodford, Fraud Magaine Although many of Toshiba's current problems lie outsi de of specific fraud-related issues, their root causes can be traced directly to a typical Japanese corporate culture. March/April 2012, by Dick Carazza, CPE Fraud-Magazine.com/Woodford.) how corparate ac coun ting frauds can go uncheckedover the course of severalmanths, years or even decades. Even today, su bordinate employees are expec ted to demon strate a deeplevel of commitment and loyalty to their corpo Don't be fooled by a toothle ss tiger! Toshiba has been hit on multiple fronts financial managerial and reputational rate managers. just to name a few, which has led to a cumulative negative impact on the value ofthe organization. Although many ofToshiba's current problems lie Under the principles of makoto, organizations look down upon em- Case Study: The role That National Culture Plays an Detecting And Deter- ployees who speak or act outside their positions'scope, accarding to Aronson. He writes that this culture preve nts in- dividuals fram questioning and/or chal lenging the de cisions of their superiors and discouragesthem from disclosing ring Fraud, by Anita R. Morgan and CariBumside, The Journal of Business outside ofspecific fraud-relatedissues their root causes can be traced directh Case Studies, The Clute Institu te, Second Quarter, 2014, volu me 10, No. 2, tinyurl com/hxr74ny Employees will use groupthink to a typical Japane se corporate culture. Toshiba placed makoto above other values, which see ms to have directly anyissues that mightarise Superiors will often reward their to rationalize the validity of question- able or unethical acts by concluding that other employees exhibit the same behavior, write Morgan and Bumside. affected its corporate govemance pro- gramsand overall performance. For CFES, the lesson is that we must adapt mostloyal employees with respect, appreciation and even promotions, according to Engleberg. Sa, corporater managers can consolidate the ir power by surrounding the mse lves with those who are committed to following the ir orders, writes Engle be rg En glebergwrites the Japanese beliefin cultural harmony can facili aurevaluation of corporate governance Under such cultural cire umstances programsto consider the underly ing cultural differences thatmighttum carporate fraud is easily committed and often goes unnoticed for long periods of time. a great program- on paper-into a toothless tiger in reality FM Furthemore,Morgan and Bumside write, the Japanese cultural values of duty, authority, hanorand harmony are Steve C. Morang, CFE, CIA, CRMA tate corparate misconduct. Cultural so highly valued that individuals are taughtto avoiddissupting social tran- is a senior manager at a CPA firmand hamony can be best described by going with the flow,rather than showing re sistance to the group-as the Japanese proverb says, the nail that sticks out president ofthe ACFE's San Francisco Chapter. His email address is: steve.morang@yahoo.com quility. Thus, it's preferable for an em ployee to turn a blind eye to corporate
