Olympus is Nipponese Corporation which was established on the 12th of October, 1919 with the name Takachiho Seisakusho by Takeshi Yamashita as the laminitis. It was re-named as Takachiho Optical Co. Ltd in May 1942. Again in January 1st 1949, the company was re-named as Olympus Optical Co. Ltd. , with the name emanating from Mount Olympus, the place of Gods and goddesses. The company was re-named once more as Olympus Corporation in October 1, 2003 set uping a dynamic corporate trade name which makes it alone and easy identified with its merchandises. The caput quarters is situated in Shinjuku Monolith, 3-1 Nishi-Shinjuku, 2-chome, Tokyo Japan. The Main aim of the company is to set up a strong tie with the society through unity, invention and engagement. This means that their chief purpose is to guarantee that the Three ‘INs ‘ are achieved by turning peoples ‘ thoughts and dreams into world. It is a company which is involved in fabrication and selling preciseness machines and assorted devices used in medical scientific disciplines, wellness attention, imaging information and industrial applications, ( wwe.olympus.com/en ) .
The assorted concerns which the company operate includes ; medical concern, life scientific discipline, Industrial concern, Camera and Audio, Research and Development and Creation of new Businesses. The company was founded with the purpose of bring forthing microscopes which will be recognized internationally as a taking maker in the planetary market. The chief drift was to progress medical equipments by fabricating Microscopes to make out to the planetary universe, ( www.olympus.com/en ) .Through their vision they were able to come out with assorted types of Cameras including Gastro Cameras. Olympus Corporation besides developed Opto-Digital Technology, which integrates the Optical engineering and hi-tech digital engineering. The Corporate motto is ‘Your Vision, Our Future ‘ . The company besides ensures that they have a hi-tech machines which can non be imitated by any rival and presently endeavoring to go a prima company in the fabrication of optical equipments.
The company has a staff population of 39,121 as at March, 2012. Olympus Corporation has assorted subdivisions across Asia and Oceania, America and Europe. Harmonizing to ( www.marketline.com ) Olympus Corporation had 10.6 billion dollars gross revenues and it reported grosss of $ 9,911.1 million dollar in financial twelvemonth at terminal of March 2011. Olympus recorded a lessening on grosss compared to the twelvemonth of 2010 by the per centum of 4.1 % . Consequently, runing net income of Olympus was $ 413.7 million in 2011. The capital of the company is ?48,332 million Nipponese Yen as at the Fiscal Year ended 31st March, 2012. Amalgamate net Gross saless sum to ?848,548 million. The Company nevertheless made a loss of ?48,985 million Nipponese Yen for the Fiscal twelvemonth 31st March, 2012, www.olympus.com/en.
Olympus Governance Structure
The Board of Directors are made up of 11 members with 6 outside the direction of the company. These 6 foreigners of the board of managers are expected to affect in determination devising by using their specialisations and experiences in the related countries. Consequently, the public presentation of managers specifies their duties in the organisation. Furthermore, Olympus has settled down the executive officer system that isolates the function of doing determinations and besides dividing the responsibilities of the Board of Directors from the others functional caputs, ( www.olympus.com ) .
Furthermore, Olympus ‘s auditing system has a cardinal function in this corporation which consists of 4 hearers. Two out of four hearers are outside of Olympus Corporation. Additionally, Corporate Auditors is supported by another office which is called Corporate Hearers ‘ Office. Presumably, Olympus hearers were portion of those who influenced the Financial Scandal of the Corporation ( www.olympus.global.com/en ) .
The purpose of this paper is to explicate what caused the Financial Scandal in Olympus Corporation, the responsible functionaries concerned and a recommendation for avoiding such sort of incidence in the hereafter.
FINANCIAL SCANDAL-WHAT WHAT HAPPENED
The Financial dirt was discovered when the first of all time Foreigner a British Born named Michael Woodford was appointed to head the Company in April 2011 as President. Michael Woodford worked with the company for 30years in Europe. Woodford indicated in an article in Financial Times on July fifth 2011 that he had a mission to alter the civilization of the Company by saying that in the battle to do good determinations, consensus and harmoniousness play their function but you besides need to use tactics and examination in administration to guarantee that you achieve your marks ( Verschoor, 2012 ) .
Woodford outlined his programs to better the position of the company to go one of the best in the industry of Medical equipment and cameras. He besides indicated that he would present advanced schemes to cut down cost and better productiveness and guarantee that the company would be able to travel to the following phase in the planetary universe. Woodford was appointed the CEO of Olympus on 1st October 2011, but after precisely 14days as a Chief executive officer, he was dismissed. The Board gave a ground for his dismissal that he was running the company entirely without the engagement of other direction staff, taking to troubles in determination devising by the full direction squad ( Verschoor, 2012 ) .
When the above intelligence was published in Financial Times, the portion monetary value of the company plunged 18 % and declined by 24 % the undermentioned twenty-four hours in the stock exchange market. As the narrative became more popular in the media, for merely a short clip the company lost a portion monetary value of 80 % ( Verschoor, 2012 ; Reuters 2011 ) .
Michael Woodford so told his side of the narrative of what happened which led to his dismissal in a study which was published by the Financial Times on 15th October, 2011. Some of the issues raised in the study include:
Paying big amounts of money to fiscal advisers which related to the purchase of a 2008 Gyrus Group, a medical maker in UK.
Acquisition of three companies in Japan which were non related to their line of concern.
Mistakes and other related issues taking to a loss of $ 1.3billion of stockholder value.
A $ 687million paid to Cayman Islands, for particular purpose investing vehicles which were vanished after the concluding payment to the company was made.
The above issues were discovered by PriceWaterHouse-Coopers who were hired by Woodford to carry on probes into the fiscal studies of the company. A follow up to the Hearers of Olympus Corporation indicated that the above payments had no illegality in the dealing dating back to 2009 studies made by the Auditors. However, the board declined in noticing on the above issues but alternatively stated that they had nil to conceal because they have made all the necessary revelation required by them ( Verschoor, 2012 ) .
Harmonizing to McNulty ( 2011 ) the company admitted on the 8th November 2011 that they had used the sum of $ 2.1billion of purchases made from Gyrus Company to cover up for investing which was soured in the past decennaries. The company used a term called Tobashi ‘meaning to do wing off ‘ by utilizing offshore companies to park their assets trusting on the recovery of the market to enable them cleanup all the losingss before being accounted for ( McNulty, 2011 ) .
McNulty further noted that the study submitted by the probe panel which had a former Judge of the Japan ‘s Supreme Court as the squad leader, showed that Olympus worked with three Bankss to carry through their docket with the Tobashi scheme in Europe to enable them acquire rid of all assets considered unserviceable from their books.
Furthermore, Olympus bought authorities bonds, deposited financess or invested in the Bankss with which they had understanding including Liechteinsten ‘s LGT Bank, Commerzbank and Societe Generale of Singapore. The same Bankss lent money to local companies which Olympus set up so that they could purchase back the disposable assets of Olympus. Harmonizing to the study, ?125biilion ( $ 1.6billion ) went through Bankss in Europe and Singapore between 1998 and 2005, McGill ( 2011/2012 ) . A screen up scheme was besides used by the company to vouch adoptions to Non Consolidated Fund Corporations. After a piece such financess were used to purchase companies which were over priced at their book value to enable Olympus retrieve all their hard currency back. The payment of purchases and service fees were besides made which leads to greater sums of good will that ensured all extra financess were given back to Olympus. Thus they ensured that all the financess paid to the fiscal advisers were subsequently recovered back to Olympus Corporation. Harmonizing to the particular commission report the undermentioned issues led to fiscal dirt as summarized below ( Verschoor, 2012 ) :
The dirt was perpetrated by top direction
The corporate civilization ( moralss ) of the company had some challenges
They used tactical method to cover the fraud without grounds
The assorted corporate organic structures ne’er function in conformity of the Companies Act
The Audit Firm besides breached the professional moralss and criterions
Part of the direction besides did non hold accomplishments and expertness relating to the direction of the company and were non efficaciously affect in the direction of the company.
The accounting rules were flawed. No revelation of information made.
Many of the staff held places for several old ages without rotary motion, taking to mistreat of office.
The administration construction of the company was really hapless taking to non-compliance to ordinances and policies.
The direction besides had Alliess ( Bankss ) who were helping them to perpetrate all the fraud.
Hiding a loss of $ 1.765billion in 1990 and seeking to cover it through immense purchases in-proper recording of the dealing.
WHO IS RESPONSIBLE FOR WHAT WENT WRONG?
Harmonizing to the Reuters intelligence paper of Tuesday 29, November and Wednesday 21, December 2011, it outlined the cardinal executive participants in Olympus fiscal dirt and what each party did to do the loss to the company.
He joined Olympus in 1964 after his graduation from Keio University ; he foremost served as in places of public dealingss, corporate planning and finance and accounting, so subsequently he became a president in 2001. During his term of presidential term he was running the company as his personal concern. He announced the dismissal of Woodford who was seeking to clean up the company image in favor of other people who had run the company in losingss. He confessed for being responsible for the losingss which the company confronted ( BBC, 2012 ) .
Harmonizing to ( www.aljzeera.com ) Kikukawa conspired with his fiscal advisers to pull strings the balance sheet of the company in 2006 and 2007 bespeaking a good fiscal place and liquidness of the company.
Hisashi Mori joined Olympus around 1981, and rose to go the executive frailty president of the company in April 2011. He is accused of supporting the ill-defined amalgamation and acquisition payments whenever he was asked by Woodford. The Nipponese media besides mentioned that Mori played a cardinal function in screen up of the company paperss related to the minutess. Before he resigned, he confessed to the current company president, Shuichi Takayama for holding done such offenses. For about 13 old ages of his working life with the company, he assisted in concealment losingss of the company. A intelligence study indicated in Aljazeera web site that Hisashi Mori was arrested in February 2012 and indicted for such flagitious offense and could be jailed for 10 old ages with a mulct of $ 128,000.00
He had been working more than 40 old ages in the company and his responsibility at the clip of fraud was internal hearer of Olympus Corporation until November 2011. Yamada connived with Mori and Investment bankers to conceal company losingss since 1998. As an internal hearer, his function was to guarantee that all the internal controls of the company and fiscal processs are adhered to. But in the above instance, he wholly violated the accounting rules and professional moralss. Even after probes revealed by Pricewaterhouse Coopers indicated that the company had made some illegal minutess, Hideo Yamada still denied that the minutess were illegal ( Verschoor, 2012 ) .
He joined Olympus in 1958. He was appointed president in 1993-2001 and subsequently served as a president up to 2005. He was awarded by the authorities for his part in spread outing Olympus in abroad states. However his predecessor as president Toshiro Shimoyama reported to the Nikkei concern daily that in the old ages 1984-1993 Kishimoto was in charge of finance and it ‘s the period where Olympus faced major losingss and it ‘s the same period where in which the company invested more in hazardous undertakings. He took portion in the award of $ 687million to Cayman Islands as adviser fee in 2008.
The audit house which was reexamining the books of the company in the 1990s were labelled as the large five including Arthur Andersen till it collapsed in 2002. KPMG took over in 2002 until 2009 when they were asked to vacate as hearers by the direction. Ernest and Young ( Shinihon ) took over in 2009 till the dirt. Neither of the Auditors of all time raised any challenge refering the fiscal records. A study in the Financial Times ( FT ) indicated that KPMG was asked to vacate as hearers in 2009 when they challenged some fiscal abnormalities refering the acquisition of the Gyrus.
Commerzbank, Societe Generale.
The above mentioned Bankss connived with the Management to go through some financess through their establishments to assist the direction achieve their aims. The Bankss received financess from Olympus Corporation in the signifier of Deposits and give those financess to smaller companies which are designated by Olympus to purchase back their disposable assets. The Bankss which were suppose to advice the Company on its fiscal lucks and investing potencies instead aided in deceitful Acts of the Apostless.
As we learnt from the above fiscal dirt from Olympus Corporation which about ruined the lucks of the company, we recommend the followers options to make full the spreads which were created as a consequence of weak Internal Control Systems in the Corporation.
RE-ELECTION OF BOARD MEMBERS
Following the Governance construction of the board which comprised of 11 members out of which 6 were outside the twenty-four hours to twenty-four hours direction of the company, it is evidenced that some of them were non working efficaciously in their functions as board members. There is therefore the demand to re-structure the direction with effectual leading and people with advanced thoughts to give the company a new stage lift as a consequence of the dirt. Sporadically electing new Board members after every four old ages to avoid maltreatment of office and besides take into history leaders who will stand for the involvement of the stockholders and investors. The re-election will heighten corporate transparence and answerability within the model of the Corporation.
B ) RE-EXAMINATION OF OLYMPUS HIERACHYCAL STRUCTURE
In theory, the Audit commission was the sub-committee of board of managers in the Olympus Corporation. As per the bing construction, Olympus president controls the Audit Committee which creates a struggle of involvement in the Corporation as a consequence. For the intent of independence, the audit commission must be wholly separated from the Board to enable them supervise the function of the board. Other Committees like the Finance Committee and Procurement Committee should besides be created within the construction for easy cooperation and effectual execution of company aims.
C ) PUT IN PLACE COMPLIANCE AND ETHICAL STANDARDS
Even though the direction of Olympus Corporation knew that the Tobashi was an illegal act, they still went in front to pattern such an act which wholly deviates from the corporate civilization of the Company. From ethical point of view, fraud violates the rights of many and better the lives of a few, which finally better no 1. Everyone loses at the terminal of twenty-four hours. Thus fraud is an ultimate unethical act in concern. To prevent this, one-year preparation of company moralss and criterions every bit good as conformity demands to be organised to guarantee that direction are abreast with issues associating to their public presentation ethically. Effective internal controls will assist to guarantee that conformity criterions and operating processs are purely adhered to. The ethical criterions of the company should besides be renewed to conform with current tendencies globally.
ADHERENCE TO ACCOUNTING PRINCIPLES BASED ON JAPANESE FINANCIAL INSTRUMENTS AND EXCHANGE LAW ( J-SOX )
The Board decided to conceal the losingss made by the company from the 1990s yet the Hearers failed to dispute the intervention of such losingss in the fiscal statements. Even though Olympus had the J-SOX rules to follow yet they went against same. In pattern, J-SOX guarantee that internal controls and accounting rules are adhered to. The undermentioned commissariats shall be adopted as measuring tools for effectual conformity with accounting rules ( Sarbanes Oxley Act, SOX ) :
Olympus Corporation to publish internal control studies which will be reviewed and evaluated by external hearers on the soundness of the controls.
The audit house should non scrutinize and supply accounting services to the same Company.
Stiff punishments for those who violate the act.
STANDARD PROCUREMENT PROCESSES
As per the Financial Scandal, it is evidenced that the direction were non using standard procurance processs and rules in the acquisition of certain assets. A clear illustration was the acquisition of Caymans medical equipment in UK without any citations from other providers. Additionally, they besides paid immense amounts of money to fiscal advisers without command. To assist turn to these challenges, there is the demand to follow procurement policies and processs in order to avoid such fiscal dirts in the hereafter. This can be done by seting a ceiling to all purchases above which a stamp will be opened to all providers to offer. The best quotation mark will be taking sing the cost, quality and timing of bringing of the products/services. Olympus Corporation ‘s direction could follow the undermentioned procurement stairss:
Purchase petition: a petition is made from the section which need the product/services to be provided. The specifications will all be indicated in the petition being made.
Choice Companies for estimate entry: Companies will be selected from the bing company profile base on old concerns done with them. A comprehensive attack will be adopted to guarantee that the quality and public presentation of the merchandises or services to be delivered are of high criterion. Issues such as timing, after-sale services, and old concern records are all considered during the rating procedure.
Estimate Request: Estimates and cost are requested from the selected companies. The assorted specifications will be indicated and considerations will be given to the quality and public presentation of the supply, size, measure and reviews.
Receiving of Citations: Citations will be received from the selected companies and cross-checked by the buying section and the section which requested for the products/services. All merchandises indicated must go through the scrutiny procedure to guarantee that they are all up to day of the month.
Negotiation: After the scrutinies are conducted on the merchandises, Negotiations will get down with the company which has the best quotation marks and most attractive proposal to find the contract monetary value and assorted footings and conditions related to the purchase.
Signing of Contracts: A contract shall be signed by the Company with the provider if the footings and conditions are agreed upon and contract paperss written. This will guarantee lucidity and legality of the contract as binding on both companies.
Delivery and Inspection: The two companies shall stipulate the bringing day of the months and purely adhered to by both parties. The Purchasing section and the section bespeaking for the merchandises shall carry on review to be certain that the merchandises are so those requested for.
Payments: After the bringing and Inspection, payments will be made to the provider company for the bringing of the merchandises made. The payments shall purely be based upon the footings and conditions of the contract.
IN THE CASE OF MERGERS AND ACQUISTION:
The Financial Scandal of Olympus indicated that they bought companies which were non related to their line of operations. An sum of $ 687million was paid to Cayman Islands stand foring the highest payment of all time made for amalgamations and acquisition in the company. This instance indicates that the direction of Olympus Corporation did non follow stairss of meeting and geting a company. The undermentioned stairss are recommended for effectual amalgamations and acquisition:
Conduct Research: A research will be conducted about the strength and failings of the concern to be purchased. A list of petition shall be made refering the fiscal statement of the company, bing contracts of the company, list of equipment and other assets of the company, list of providers and clients of the company, liabilities and rental every bit good as employee list and wages paid to each.
A Decision of the Structure of the Purchase: The construction of the purchase shall see the monetary value of the concern, who to make the purchasing and merchandising, whether portions or assets are to be purchased and how the payments will be made to the marketer. The purchase shall be made through the company to give revenue enhancement benefits and besides limit the hazard profile of the company. If the assets of the company are to be bought, it gives you precisely what assets you will hold when the dealing is complete, and besides gives flexibleness and control of your purchase.
Negotiate other footings and Conditionss: It is besides of import to see the other footings of the purchase. Some of which may include whether the employees are besides traveling to be added after the purchase or a handful employees be considered. It help find the sum of rupture to pay should the alteration take topographic point and if any employee ‘s services is no longer needed. It besides ensures that an understanding is signed by the marketer that no rival concern shall be opened to vie with your new company after the purchase.
Legal paperss should be prepared: As a purchaser, you prepare the first legal papers called ‘letter of purpose ‘ which will be given to the attorneies of the marketer to reexamine, to avoid misconstruing closer to the day of the month of sale. A purchase understanding will be prepared detailing all issues associating the purchase and sale to guarantee that you get what you pay for by keeping the marketer responsible for any deceptive information sing the sale.
Seek Financial Advice: Finally, guarantee that you know what you are purchasing, seek the best fiscal advice which will assist cut down unneeded cost construct up. You may besides walk off if the costs involve are excessively high or the hazard excessively great to venture in the purchase or sale.
INTERNAL CONTROL MEASURES:
Although there was an Internal Control System in Olympus Corporation, everybody was inquiring how it is possible to hold fiscal dirt with the being of internal control. As it was described on the first portion of this paper, the fiscal dirt in Olympus was as a consequence of a weak internal control system. Olympus did non hold a system which could look into top corrupt directors. However, with the undermentioned recommendations, Olympus would be able to strength its internal controls and explicate an first-class administration construction.
Communication: Management must guarantee that there is effectual communicating across all degrees. There should be regular interaction between direction and staff which reiterate to committedness of the company in-terms of the aims and set ends. Adopting good communicating systems guarantee that where there are frauds related issues, persons within the company can be able to make direction through mails, electronic mails and other telephone lines by study and appropriate steps taken to turn to it.
Segregation of Duties: Persons must besides be given clear cut duties and functions within the company. This is done by saying the mandate, detention and indicating who to be in control of beginning paperss and records. This will greatly cut down the hazard of fraud and other related dirt issues.
Fraud and Risk Assessment: It is besides of import to carry on appraisal of assorted sections within the Company in relation to fraud and hazard related issues. How paperss are kept, destroyed and controlled must all be assessed in item to guarantee that equal steps are kept to protect the involvement of the company. This appraisal is based on processs, procedures and controls.
Testing of Key Controls: Several Controls should besides be tested to guarantee that the controls are working decently. Internal Controls should besides be tested in a controlled environment to guarantee that fake and situational testing is applied on all concern procedures and event preparedness.