The Olympus Scandal
The Olympus Scandal
Hot Potatoes and Flying Funds
Summary
This paper describes the case of Olympus, a Japanese manufacturer of optic equipment, at which in early 2012 a scandal was uncovered which was soon dubbed to be one of the largest loss-concealment schemes of Japan. In the 1990’s, Olympus incurred significant losses on financial investments made. These were subsequently hidden with the aid of investment companies by shifting the investments around. In the 2000’s, these losses were to be repaid by paying exorbitant merger and acquisition fees to these investment companies. After newly-appointed CEO Michael Woodford blew the whistle on these frauds, the company got into trouble. Our research into the events leading to this scandal, as well as an observation of the internal control environment led to some interesting insights regarding possible improvements Olympus might implement. However, we also note that a collusion of board members cannot be prevented by any level of internal control, and a renewal of the entire board might be appropriate in order to establish proper internal control within the Olympus Corporation.
Table of Contents
Table of Contents 2
Chapter 1 3
1.1 Description of the organization of Olympus 3
Organization 3
Strategic Analysis 3
Management Structure 4
1.2 The Olympus Scandal 5
Background 6
Tobashi Schemes 6
Whistleblower 7
Legal Actions 9
1.3 Analysis of the events 9
Chapter 2 11
2.1 Evaluation of and recommendations for the control environment 11
Organizational Structure 11
Board of Directors and Audit Committee 12
Management Philosophy and Operating Style 13
Assignment of Authority and Responsibility 15
Human Resource Policy and Practices 16
Integrity and Ethical Values 17
Commitment and Compliance 18
2.2 Recommendations for control activities 19
Chapter 3 20
3.1 Conclusion 20
Literature Used 21
Appendix 23
Chapter 1
1.1 Description of the
Hot Potatoes and Flying Funds
Summary
This paper describes the case of Olympus, a Japanese manufacturer of optic equipment, at which in early 2012 a scandal was uncovered which was soon dubbed to be one of the largest loss-concealment schemes of Japan. In the 1990’s, Olympus incurred significant losses on financial investments made. These were subsequently hidden with the aid of investment companies by shifting the investments around. In the 2000’s, these losses were to be repaid by paying exorbitant merger and acquisition fees to these investment companies. After newly-appointed CEO Michael Woodford blew the whistle on these frauds, the company got into trouble. Our research into the events leading to this scandal, as well as an observation of the internal control environment led to some interesting insights regarding possible improvements Olympus might implement. However, we also note that a collusion of board members cannot be prevented by any level of internal control, and a renewal of the entire board might be appropriate in order to establish proper internal control within the Olympus Corporation.
Table of Contents
Table of Contents 2
Chapter 1 3
1.1 Description of the organization of Olympus 3
Organization 3
Strategic Analysis 3
Management Structure 4
1.2 The Olympus Scandal 5
Background 6
Tobashi Schemes 6
Whistleblower 7
Legal Actions 9
1.3 Analysis of the events 9
Chapter 2 11
2.1 Evaluation of and recommendations for the control environment 11
Organizational Structure 11
Board of Directors and Audit Committee 12
Management Philosophy and Operating Style 13
Assignment of Authority and Responsibility 15
Human Resource Policy and Practices 16
Integrity and Ethical Values 17
Commitment and Compliance 18
2.2 Recommendations for control activities 19
Chapter 3 20
3.1 Conclusion 20
Literature Used 21
Appendix 23
Chapter 1
1.1 Description of the