Today, an announcement was released by APPBANK, which had only recently gone public.
We regret to announce that facts have come to light suggesting that a former executive of the Company embezzled Company funds in the course of business throughout the period in which the person served in the accounting department. It is deeply regrettable that such a situation has arisen at the Company. We deeply apologize to our shareholders and investors, business partners, and other stakeholders for the considerable inconvenience and concern caused by this situation. The Company is currently investigating these facts and intends to disclose them promptly once the facts requiring disclosure have been established.
Overview of the matter and how the facts suspected to constitute embezzlement in the course of business came to light: During a tax audit in late November 2015, a counterparty whose whereabouts could not be determined was found among the Company's payees. After the details were examined, an internal investigation in early December 2015 revealed that the former executive who had been in charge of the accounting department had, between 2012 and 2015, disguised several corporations and other entities in which the person was involved as if they were Company counterparties and improperly remitted funds from the Company's bank accounts to the accounts of those corporations and other entities. The total amount of improper remittances identified at this time is expected to reach approximately ¥140 million.
It had gone public on October 15, 2015, and made this disclosure only two months later. It is said to have been discovered in the course of a tax audit in late November. This indicates a significant problem with internal controls; had the matter been discovered before the listing, the company probably would not have gone public. A matter that the Tokyo Stock Exchange, securities firms, and audit firms could not find despite investigating it among the three of them was uncovered in a tax audit... Tax audits are frightening indeed.
In tax audits, the authorities conduct what are called counterparty investigations, directly confirming a counterparty's figures with that counterparty. Those who have been in business for a long time have probably received such an inquiry a number of times.
There are three kinds of counterparty investigation: written inquiries, inquiries by telephone, and on-site inquiries.
It was probably discovered that improper remittances had been made to companies with no substance.
As a practical point of caution in business, if a transaction appears suspicious, the authorities contact the counterparty, which may inconvenience the counterparty. To prevent that as much as possible, make sure you can properly explain delivered goods and the like so that a transaction is not regarded as suspicious.
In this matter, I expect an investigation committee to be established and its findings to be published, with past financial statements corrected depending on the scale. I will update this article further when that happens. The ¥140 million known at this time amounts to half of the ordinary profit for the fiscal year immediately before the listing and is material to the company, so I would prefer it to be a “third-party” investigation committee rather than an “internal” investigation committee. (Added note: 2015/12/15 It was an “internal” investigation committee (Japanese))
By the way, it appears that people outside the tax office had also pointed out to AppBank the possibility of fictitious transactions. One is a well-known person with the nickname “Kirikomi Taicho” (“the point man”) and formidable investigative ability.
I am deeply moved to see this disclosure three months after the issue was raised. RT @sonohiro009: @kirik Company A, whose security is full of holes, has released some interesting IR information.
— Ichiro Yamamoto (@kirik) 2015, December 10
I thought AppBank would file a criminal complaint over the embezzlement story, but for some reason it stopped at an internal investigation. Before I knew it, a company associate’s studio had been absorbed by AppBank, and when I wondered what was going on, it came to light that people connected with the company and former employees had been made to submit one-year confidentiality pledges. I cannot stop the tears from flowing. I have the documents, so shall I expose it?
— Ichiro Yamamoto (@kirik) 2015, December 16