Did The Fraud At Ricoh India Begin Much Before The Company Claims?

Was Ricoh India forewarned of accounting fraud?

A man carries a boxed Ricoh Co. Aficio SP 100 printer in Nehru Place IT Market, a hub for the sale of electronic goods and computer accessories, in downtown New Delhi, India (Photographer: Graham Crouch/Bloomberg)
A man carries a boxed Ricoh Co. Aficio SP 100 printer in Nehru Place IT Market, a hub for the sale of electronic goods and computer accessories, in downtown New Delhi, India (Photographer: Graham Crouch/Bloomberg)

The alleged accounting fraud at printer and scanner maker Ricoh India may have started in financial year 2013-14 as opposed to the company’s stand that its books were in order during that period. That’s according to a preliminary audit report by PwC, based on the deposition of a whistleblower.

Ricoh India’s books of accounts were being fudged from January 2014 and the misrepresentation resulted in a net increase of Rs 199 crore in profit in the next financial year (2014-15), the report says quoting the whistleblower, a former head of finance at Ricoh India.

Recorded transactions appeared to give the impression that previously unreported losses were “effectively being adjusted” through the account of Fourth Dimension Solutions Ltd., a supplier and customer, PwC’s report said. On its part, Fourth Dimension Solutions has filed an insolvency petition against the company to recover Rs 429 crore for a cancelled contract.

BloombergQuint has obtained a copy of the PwC report. Ricoh India responded to queries regarding the report by stating that, “the PwC report is legally privileged and confidential document that has all the matters which are subject to legal process. Therefore, it is inappropriate for the company to potentially prejudice any action by commenting on it.”

PwC was appointed by law firm Shardul Amarchand Mangaldas, legal counsel of Ricoh India, to conduct a forensic audit of accounts between April 1 and September 30, 2015. At that time, the company’s position was that there was nothing wrong with its books before the said period. The audit findings, however, suggest that the rot ran deeper.

Instances were noted where backdated entries were recorded thus impacting the audited financial statements for the year ended March 31, 2015. The rationale and impact of these entries is not yet fully ascertained.
Preliminary Audit Report of PwC

The PwC report says that another employee, who was the national credit controller of Ricoh India, had also raised concerns in January 2015 that debts worth Rs 254 crore were related to customers who had not been delivered the goods.

This fits in with commentary by Ricoh’s statutory auditor at the time. In the auditor report for the quarter ended September 30, 2015, BSR & Co said the company had recognised revenue based on orders in hand. Accounting standards permit revenue recognition only after transfer of goods.

PwC’s preliminary audit report also highlights that there were multiple emails dating back to 2014 in which allegations were made against Ricoh India employees suggesting wrongdoings.

For instance, exhibits attached with the report show that on July 17, 2014 an email sent to top company officials alleged a senior executive, who dealt with government and public sector units, was involved in activities that damaged Ricoh India’s reputation.

“He fudges company documents for running the business which will end up blacklisting the company in India affecting Ricoh Japan. He generates unauthorised, fake transactions and bribes officials,” said the email attached as an exhibit within the report.

Last July, Ricoh India said that its accounts appeared to be have been “falsified” as it estimated to incur a loss of Rs 1,123 crore for 2015-16. In May, it had approached the Delhi police accusing a few of its employees of committing forgery, falsification of records and criminal breach of trust. The claims were later discarded by the Economic Offences Wing.