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Fuji Xerox NZ expands civil case, adds former accountant EY

Fuji Xerox NZ has added accountancy firm EY (formerly Ernst & Young) as a defendant in its case against three former executives over an accounting scandal that saw FXNZ and Fuji Xerox Australia (FXA) overstate revenues by about $A450 million.

High Court Building Auckland
  The High Court in Auckland

In September 2017, Fuji Xerox NZ, Fuji Xerox Finance and Fuji Xerox Asia Pacific filed proceedings in the High Court in Auckland against former FXNZ and FXA MD Neil Whittaker, former FXNZ MD Gavin Pollard and former chief financial officer Mark Allright. The legal action followed a report commissioned by parent Fujifilm that found “inappropriate accounting” at FXNZ and FXA had inflated revenue by about $A450 million between 2011 and 2016. New Zealand’s Serious Fraud Office is still investigating the matter.

The independent report identified a “sales at any cost” culture at FXNZ that led to commissions being paid on contracts that included speculative estimates of future printer usage. It found that former FXNZ MD Whittaker was paid more than $1 million to leave his job as MD of FXA after the irregularities were uncovered. Fuji Xerox’s Japan-based chairman, deputy president and two directors all resigned following the release of the report.

The civil case was back in court in Auckland last week, when FXNZ added its former accounting firm EY as a new defendant, according to a report in the NZ Herald. “Fuji Xerox New Zealand managing director Peter Thomas confirmed to the NZ Herald that EY had been added to the case as a defendant,” the newspaper said.

London-based Ernst & Young is one of the Big Four multinational accounting firms, along with Deloitte, KPMG and PricewaterhouseCoopers. The company is currently under investigation by UK accounting watchdog The Financial Reporting Council over its 2018 audit of iconic 178-year old travel group Thomas Cook, which collapsed in September 2019.

Last year, the disciplinary tribunal of the Institute of Chartered Accountants in New Zealand censured the accountant who led Fuji Xerox's audit team and suspended him from practicing for a year, after he accepted he was negligent. In August 2019, the Australian Government announced parliamentary inquiries into the millions of dollars of work that the four accounting firms undertake for the federal government, and into the quality of their audits of listed companies. “The shoddy audit standards, massive government consulting business and global tax avoidance operations of the Big Four accounting firms, EY, KPMG, Deloitte and PwC, now finally face government scrutiny,” wrote independent journalist Michael West.

In an interview earlier this year with The Spinoff, current FXNZ MD Thomas said: “The thing that changed for us was when we had a change of auditor in early 2017, KPMG are our auditors now. Their view was that we had been incorrectly recognising revenue on particular contracts from 2010 to 2015. They raised those issues with our shareholder (Fujifilm). They also raised the issue that potential fraud had occurred in New Zealand, and that’s what set off the independent investigation.”

The Fuji Xerox civil case has been adjourned for a private meeting of parties in Auckland next week, a High Court spokesperson told Wide Format Online.  “The case has been adjourned for a private case conference between the parties to be held on 4 November. That conference is only for the parties and lawyers. That’s all I can say at this stage.”

Meanwhile, NBR  reports that the original whistleblower in the case, identified only as “Tony Night” – who emailed Fuji Xerox executives in 2015 to first alert them about the accounting irregularities – has won a legal bid to keep his name secret in the ongoing case.