COMMENT:

Fuji Xerox and its managing director, Peter Thomas, have embarked on a charm offensive to try and win back government contracts lost following a near $500 million accounting scandal.

But their efforts, including the commissioning of a 136-page sustainability report, shouldn't serve as a green light for reinstating the firm as a government provider of printing and photocopying services.

The Government should be careful not to rush into a decision on the valuable contracts, at least not until a Serious Fraud Office investigation and civil legal action is resolved.

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Fuji's PR campaign ramped up late last month with the release of the New Zealand company's sustainability report titled "The Past Informs the Future", and split into five chapters complete with Māori whakatauki, or traditional proverbs.

The report, understood to be two years in the making, is more than double the size of similar reports other subsidiaries of the Japanese parent FujiFilm Holdings have put out since the scandal broke in late 2016.

The report has served as a talking point for Fuji Xerox at a time when it is keen to stress it's turned a corner and put its previous practices firmly in the past. Those practices resulted in probably the biggest accounting scandal in New Zealand's history.

The "inappropriate accounting" over a six-year period from March 2011 to March 2016 culminated in Fujifilm booking losses of $473m, including about $355m from the New Zealand company.

The root of the cause, according to an independent report released last year, was a "sales first at any cost culture" to meet sales targets, and commissions that saw photocopier sales staff making more money than Cabinet ministers.

Lavish bonuses were handed out while holidays to senior executives and their wives were later costed at up to $25,000 a head.

Following media attention by the National Business Review, majority shareholder Fujifilm commissioned an independent report and in June 2017 the findings were translated into English and released publicly.

The report found Fuji Xerox NZ consistently exaggerated sales revenue, including through double recording of sales, recording fictitious sales and fictitious recording of expenses.

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Fuji Xerox, which has been under investigation by the Serious Fraud Office since October 2017, suspended itself from taking on new contracts with government organisations.
MBIE, which administers the All of Government procurement process, has not disclosed the criteria which will be applied to lift the suspension.

Thomas was promoted to head the New Zealand business as managing director in October 2017. He has been fronting up to media in a bid to sell a turnaround story and that the company has changed its ways and effectively broken from the past.

But this must be hard for him given he joined Fuji Xerox in September 2015 initially as a general manager with oversight of logistics, HR, and legal affairs.

In two recent interviews Thomas described what he saw when he first joined the company.

"To be honest within a few weeks of being in the company it was pretty clear to me that things were not well," he was quoted by NBR last week.

If that's the case I have to ask why did he see fit to be appointed a director of the Fuji Xerox board on April 1, 2016 and then approve the financial statements for the 2016 financial year? Those statements were ultimately revised downwards by $185m after the 2017 investigation.

Thomas this week told the Herald that what he immediately saw was the sales at any cost culture and a focus on revenue rather than profitability.

"I'm not an accountant but I found, looking at the finance function, things were pretty much in disarray when I arrived. One of the first things I got underway was an external review of our finance function to see if it was fit for purpose."

Some changes were made and the first bad debts were identified that led to a $51m loss in the 2016 financial year. He says he wasn't aware of the extent of the accounting irregularities outlined in the Fujifilm report.

"I guess it was with the lens of a new auditor and ultimately the independent investigation review which led to the reclassification and losses reported since."

He said the reason he stayed on and became a director was he's always enjoyed a challenge and Fuji certainly presented that.

However, while Fuji Xerox has made some big changes internally and is looking at a brighter future, it does seem a big ask to reinstate high-value government contracts so soon.

It's a long road to redemption and I believe it will take more than a smooth talking managing director and some greenwashing to convince the powers it's a fit and proper supplier.