Notice on Submission of Improvement Report to Tokyo and Osaka Stock Exchanges
TOKYO, October 11, 2012 -- OKI (TSE:6703, "the Company") announced that the Company has submitted its Improvement Report to Tokyo Stock Exchange and Osaka Securities Exchange on October 1.
The summary translation of the improvement report, found within this press release, is for reference purpose only.
Background
1. Background for Disclosure upon Recognizing Causes to Amend Past Financial Results
(See Circumstances of the Discovery and Overview of the Matter within the Notice of Improper Accounting at an Overseas Consolidated Subsidiary and Postponement of Q1 Financial Results Announcement, dated August 8, 2012 and Overview of the Notice on Investigate Report Regarding Improper Accounting at an Overseas Consolidated Subsidiary, dated September 11, 2012)
2. Background for Amendments to Previous Financial Results
(See Summary of investigate report by the External Investigative Committee within the Notice on Investigate Report Regarding Improper Accounting at an Overseas Consolidated Subsidiary, dated September 11, 2012)
3. Contents of Amendments to Previous Financial Results
(See Impact amount on the Company's consolidated financial statements of the Notice on Investigate Report Regarding Improper Accounting at an Overseas Consolidated Subsidiary, dated September 11, 2012)
Improvement Measures
1. Direct Causes leading to Inappropriate Accounting
(See Analysis of improper accounting within the Notice on Investigate Report Regarding Improper Accounting at an Overseas Consolidated Subsidiary, dated September 11, 2012)
2. Improvement Measures to Prevent Recurrence
2-1. Improvement Measures for Causes Attributable to OSIB
(1) The former managing director of Oki Systems Ibérica S.A.U. (hereinafter referred to as OSIB) received disciplinary dismissal on September 10, 2012 and Oki Europe Limited (hereinafter referred to as OEL) has appointed a senior director of OEL as the succeeding managing director effective October 1, 2012.
(2) OEL's "Policy and Procedure" which complies with regulations of sales companies including OSIB, will be revised by October 2012 to clarify that OSIB's board of directors meeting be held at least once every 3 months.
(3) OSIB will cease to use its external warehouse by December 2012 and its functions will be transferred to the warehouse in the Netherlands which is managed by OEL.
OSIB has paid off all the remaining amount of the factoring on August 29, 2012. With regards to the bill discount, we have cancelled the new discounts and will clear the existing ones at the account settlement on the expiration date by the end of December 2012. After the above, OSIB's own financial arrangements will be cleared.
OEL's administrative department will hold the function of checking the validity of the data entered such as accounts receivable etc. in OSIB's accounting system, which was previously checked by the administrative department in OSIB, by October 2012.
(4) "Internal Report Protection Rules" will be set for overseas consolidated subsidiaries by December 2012.
2-2. Improvement Measures for Causes Attributable to OEL and ODC
(1) Going forward, Oki Data Corporation (hereinafter referred to as ODC) will refer to objective data such as economic and market trends by research companies, examine sales plans considering company status based on previous results etc. and set convincing sales targets. Furthermore, in order to raise awareness of compliance among employees, training on compliance, focusing on the importance of financial reporting will be provided to executives and employees at OEL and its sales companies by March 2013.
(2) In accordance with the Company's "Group Company Management Regulations" either OEL or ODC will dispatch its executive members as directors to OEL's sales companies, including OSIB.
(3) ODC's "Group Company Management Rules" will be revised to incorporate; prohibition of sales companies holding external warehouses; prohibition of unique financial arrangements; OEL's administrative department to hold the function of checking the validity of the data entered into the accounting system, by December 2012.
(4) ODC will establish a system to enable grasping distribution inventory in a timely manner by December 2012.
(5) ODC will enforce its internal auditing human resources and functions. At the same time, OEL will set up an exclusive department which performs internal audits and join internal audits taken by ODC for OEL's sales companies, including OSIB by March 2014. In relation to the above, ODC and OEL will review regulations on the audit frequency.
(6) ODC and OEL will continue to take remedial actions to operate an appropriate internal control related to financial reports by confirming the effectiveness of company-wide control functions, reporting the financial results control and operation processes control at OSIB.
2-3. Improvement Measures for Causes Attributable to OKI and the OKI Group
(1) Effective October, the Company has set up a "Risk Control Committee" with the President of OKI as chairman, external board members and auditing officers as advisors. The Committee will receive reports on risk information in business activities such as the accuracy of the account processing from each executive (incl. ODC President) in charge of each business and promote measures to prevent risks from growing. As a prerequisite to the above, we will once again communicate to OKI's corporate officers, ODC board members and corporate officers and all the employees in sales companies under OEL to make them thoroughly aware of the basic rule that we will take the systematic process in compliance with the "Group Company Control Regulations" when a problem occurs in a subsidiary.
The Company will establish compliance commitment with OKI and ODC executives by the end of October 2012. In parallel, we will review the "OKI Group Code of Conduct" by December 2012 to show the basic attitude to develop the company culture that people can raise, listen to and share issues as soon as possible and deal with them appropriately.
(2) For all the consolidated subsidiaries in the OKI Group including ODC, OEL and OSIB, in order to thoroughly communicate the practical policies and methods regarding the sales allocation standard, trade accounts receivable, inventory assets, fixed assets, allowance, etc., we will hold the account briefing session, which we currently hold once a year, every half-year from second half of this fiscal year.
(3) OKI's internal control promotion team will check the validity of corrected OSIB's internal control documents related to financial reports in the evaluation process reviewed by the Local Project Management Office (hereinafter referred to as LPMO) of OEL and ODC.
The internal control promotion team will make all the members of LPMO aware of the policies (monetarily and substantially significant business should be visualized) in creating documents on the operation process of key consolidated companies and will check if there are any main businesses to be classified separately from other business, in light of risk characters regarding internal control related to financial reports of which information will be provided by LPMO, using their internal control documents.
The internal control promotion team will establish a system together with key consolidated companies including OSIB by March 2013 where they will check with an external auditing firm as necessary and notify the checked result to LPMO. LPMO will ask each department responsible to take necessary procedures based on the result.
2-4. Other Improvement Measures
(1) Enhancement of Group consolidated management
In order to make all employees aware of the basics of the consolidated management, representatives of all the consolidated subsidiaries will make their employees aware of the "Group Company Management Regulations" and ask them to submit the confirmation document signed by a representative to the "Recurrence Prevention Committee" by March 2013.
(2) Enhancement of board of directors meetings at subsidiaries
The parent companies such as ODC and OEL will review the status of dual roles as board member and auditing officer in all the consolidated subsidiaries by December 2012 and will establish a system to control and monitor them sufficiently.
(3) Reviewing "Group Company Management Regulations"
The Company will formulate detailed regulations for its "Group Company Management Regulations" by December 2012.
(4) Review of human resource management
The Company will expand the scope of its "Group Human Resource Management Committee" to include overseas consolidated subsidiaries such as OEL and OKI Data Americas, effective March 2013.
(5) Rotation of human resources
The Company is considering human resource rotation (changing the job that an employee is responsible for and moving them to another department, etc.) mainly for people who have been in the same position for a long time and additionally, operation support for 6 months in a consolidated subsidiary overseas with a view to train people to be posted overseas. The Company will reflect on the outcome of our review in the routine rotation in April 2013.
(6) Clarification of the punitive rules
The Company will clearly stipulate the penalties for violating the internal regulations more clearly.
(7) Review on the authority regulations related to information system
In order to check the accuracy of the accounting system of consolidated subsidiaries and check the validity of the approval authority, the Company will review the authority regulations related to the information system by the end of March 2013.
(8) Account managers meeting and control of accounting and control divisions
The Company will expand the range of companies applicable to the Group accounting and control division meeting which currently takes place, to include OSIB as well as ODC and OEL by December 2012. The Company will try to share information, detect problems from various angles and make plans for support swiftly. Moreover, the Company will investigate actual status of control functions executed by each accounting and control division.
(9) Confirming content of the financial audit and report on the audit status
The Company will carry out an investigation on specific audit procedures for the accounts section of each department and each company to check if the external accounting audit is carried out appropriately by December 2012.
(10) Review on the cycle of internal audit
The Company will carry out an internal audit once every 2 years for the key consolidated companies of our Group and once in 3 years for other J-SOX target companies in principle from October 2012 onwards.
(11) Audit manager meeting
The Company will hold audit manager meeting once every 6 months from the second half of this fiscal year.
(12) Reforming company culture and raising compliance awareness
The "OKI Group Code of Conduct" will be revised and the Company will make all employees aware of the revised regulations. In addition, the Company will provide e-learning in November 2012 where sales activities which led to the incorrect account processing will be explained.
Note:
Currently the OKI Group consists of 85 companies including the Company. Amongst them, 42 companies including OKI are applicable to the law related to internal control on financial reports, i.e., companies whose sales volume or sale costs falls into about 95% of the whole from the top. Furthermore, 15 companies amongst them including the Company fall into two thirds of the whole from the top in the key consolidated account titles (sales, cost of sales, trade accounts receivable in trade, inventories, fixed assets, deferred tax assets, allowance for retirement benefits for employees). In principle the various improvement measures mentioned in this document are to be carried out with the following priority: (1) Key consolidated companies (2) J-SOX target companies (3) OKI Group companies.
2-5. Schedule of Improvement Measures
The Company will start working on the items for improvement measures as soon as possible. The Company will steadily carry out improvement measures with the Recurrence Prevention Committee by March 2013 and with main the department for each item after March 2013 while checking the progress and impact. Some items may take a while to improve, but the Company will clarify the schedule of those items and will ensure that a similar situation will never happen again by raising awareness across the whole Group.
3. Disciplinary Action for those Involved
OKI seriously acknowledges the responsibilities for having caused the Company to incur losses; the Company has decided to impose penalties as indicated below.
(1) Person directly involved
OSIB Former Managing Director – Dismissed on September 10, 2012
(2) Related OKI directors
Harushige Sugimoto, Advisor (ODC Former President) – Resigned on September 30, 2012
Hideichi Kawasaki, President, Representative Director – Salary reduction of 30% for 3 months
Naoki Sato, Senior Executive Vice President, Representative Director – Salary reduction of 30% for 3 months
Hisao Suzuki, Executive Vice President, in charge of compliance – Salary reduction of 30% for 2 months
Takao Hiramoto, Senior Vice President, Director and ODC President – Salary reduction of 30% for 2 months.
Toshiya Hatakeyama, Executive Officer, Head of Accounting and former ODC executive of Accounting – Salary reduction of 30% for 3 months
Masahiko Morioka, Executive Officer, ODC Deputy President – Salary reduction of 30% for 2 months
Sei Yano, Executive Vice President, Director – Salary reduction of 10% for 2 months
The reduction will take effect from the salary of October 2012.
Keiichi Fukumura, the Company Auditor, has voluntarily returned 10% of his salary for 2 months.
(3) Others
Appropriate procedures will be taken strictly for other people involved in OKI, ODC, OEL and OSIB based on employment regulations.
4. Awareness of the Impact on the Investors and the Stock Market due to the Disclosure of Inappropriate Information
We deeply apologize for the inconvenience and concern caused to shareholders, investors, and many other parties that the past financial results were not appropriately disclosed. OKI, as a listed company, will work together to steadily implement the above improvement measures for preventing recurrence of incidents similar to the inappropriate accounting. We will endeavor to regain the trust of all stakeholders and the market.
About OKI Electric Industry (OKI)
Founded in 1881, OKI Electric Industry is Japan's leading telecommunications manufacturer in the Info-telecom field. Headquartered in Tokyo, Japan, OKI provides top-quality products, technologies, and solutions to customers through its info-telecom systems and printer operations. Its various business divisions function synergistically to bring to market exciting new products and technologies that meet a wide range of customer needs in various sectors. Visit OKI's global website at http://www.oki.com/.
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