Toshiba eliminates sales of JPY 21.5bn from DS segment due to suspicious transactions probe

Maria Nikolova

Toshiba has issued an update regarding the investigation into suspicious transactions at its IT subsidiary.

Toshiba Corp (TYO:6502) has earlier today posted a notice regarding the results of its investigation of suspicious transactions at one of its subsidiaries.

As FinanceFeeds reported in January, Toshiba Corporation announced that it had become aware that Toshiba IT-Services Corporation (TSC) may have been involved in suspicious transactions over multiple years, the actual existence of which had not been confirmed at that time.

Toshiba today announced a summary of the results of the investigation, and measures it will take to prevent any recurrence.

The investigation has concluded that the transactions were fictitious, instances of round tripping that did not involve any commercial goods or end-users. At the same time, the Company confirmed there was no evidence indicating that any employees of TSC, including a manager who was directly in charge of the transactions, initiated the transactions, nor any evidence of TSC’s organizational involvement in the transactions. TSC, as one of contracting parties, was involved in the transactions that were initiated by a sales person at another company, without realizing that the transactions were illusory or circular.

Toshiba recognizes that TSC did not initiate the transactions, and was not intentionally involved in fictitious transactions. However, it also acknowledges that there were weaknesses in TSC.

In response, recurrence prevention measures will be implemented. From now on TDSL group companies, including TSC, will only participate in transactions in which they create value by providing their own products directly to customers. TDSL will strengthen its internal control systems to ensure thorough check of quotations and work completion reports, and prepare more comprehensive guidelines and regulations regarding product sales and services. It will also secure more effective in-house monitoring and supervision systems, and train all employees in how to use its whistleblowing system. Furthermore, TDSL will also enhance its order entry process by strengthening its review systems and by increasing verification by procurement and other related divisions, reevaluate job rotation systems to avoid over reliance on certain individuals, improve employee educations, and change its method of performance evaluation.

As result of investigation, Toshiba has eliminated net sales of 21.5 billion yen and operating profit of 1.8 billion yen from the Digital Solutions segment of its consolidated financial statements for the third quarter of fiscal year to end-March 2020.

There are also unsettled debts and credits in relation to part of the fictional transactions. The related parties have not decided how they will be handled.

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