Mitsubishi Electric Corporation today issued a report on the results of its internal investigation and resulting countermeasures regarding the overcharging of expenses by its Electronic Systems Group to Japan’s Ministry of Defense (MOD), the Cabinet Satellite Intelligence Center (CSICE), the Japan Aerospace Exploration Agency (JAXA), the National Institute of Information and Communications Technology (NICT) and the Ministry of Internal Affairs and Communications (MIC). All Mitsubishi Electric Group executive officers and employees are committed to working together to prevent any recurrence and to restore public trust. Mitsubishi Electric separately announced today that it expects to record a reserve to refund overcharged expenses for contracts with MOD, CSICE, JAXA and NICT. The company has also revised its financial results forecast for the current fiscal year ending March 2013. Background On January 17, Mitsubishi Electric received inquiries from MOD, CSICE and JAXA regarding costs accrued by the company’s Kamakura Works. An internal investigation revealed that in certain projects expenses had been overcharged by shifting work records between different orders. On January 27, Mitsubishi Electric notified MOD, CSICE and JAXA of its findings and subsequently launched a detailed investigation. The company also investigated the possible existence of similar cases involving contracts with other customers or those signed by affiliated companies. Further investigation revealed that Mitsubishi Electric also had overcharged expenses to NICT and MIC, and that four of the company’s affiliated companies had overcharged expenses to MOD. The findings were reported to each customer and a detailed investigation was launched. Timeline January 17 : Received inquiries from MOD, CSICE and JAXA regarding costs accrued by the Kamakura Works. Launched an internal investigation. January 27: Reported to MOD, CSICE and JAXA that certain projects had overcharged expenses by shifting work records between different orders. February 3: Reported to NICT that work records had been shifted between different contracts. February 24: Mitsubishi Precision Co., Ltd., Mitsubishi Electric TOKKI Systems Corporation and Mitsubishi Space Software Co., Ltd., all subsidiaries of Mitsubishi Electric, as well as Taiyo Musen Co., Ltd., an equity-method affiliate, each informed MOD that they had overcharged expenses by shifting work records between different orders. March 2: Reported to MIC that Mitsubishi Electric had overcharged expenses for contracts regarding consigned research and development conducted on behalf of MIC. Paid refunds to the national treasury on July 4. Outline of internal investigation To ensure neutrality, the investigation members comprised mainly employees in the company’s Corporate Legal & Compliance Division and lawyers. The team investigated sections involved in defense and space businesses, namely, the Electronic Systems Group, the Kamakura Works and the Communication Systems Center, in addition to corporate divisions of Mitsubishi Electric. Each of the four affiliated companies also formed investigation teams, which included lawyers, to conduct self investigations. The investigation covered a wide range of contracts, including not only cost audit contracts but also general fixed contracts. Cost audit contracts require a decrease in the contract amount or a reimbursement of excess profit if the initial cost does not reach the amount assigned in the original contract, while general fixed contracts determine the sum at the time of the contract. During the investigation, contract- and labor-related documents, emails and other materials were inspected and executive officers and employees were interviewed. Investigation results How work records were shifted It became clear that in certain projects work records had been shifted and recorded inappropriately, including those in both general fixed contracts and cost audit contracts. Details regarding when or how the inappropriate recording of work began could not be identified, but the company confirmed that such activities had been taking place since at least the 1970s in its defense business and since the beginning of the 1990s in its space business. There also were cases in which design outsourcing and other expenses were charged to orders separate from those to which they were actually supposed to be charged. Work records were shifted in the following manner: - Based on the contract fee, target costs were decided for materials, processing, design and other expenses. - Based on the target costs, the division coordinating a certain order, or contract, assigned target work to sections. - Each section manager assigned target work to section members. - When the actual work of the section members did not match the target work amount, work records were amended, or shifted, to match the target by recording the work in a different order, or by not recording it. In some workplaces, the work records typed in by section members were found to have been amended and shifted by section managers. - Work amounts recorded according to these instructions were then used when processing the charges, resulting in overcharging. Records of actual work do not exist. Involvement of high-level personnel Section managers who were required to adhere to target work amounts mainly carried out the work shifting. Division managers and other higher-level managers in factories were not found to be proactively involved in matters such as instructing the shifting of work records. These higher-level managers were, however, generally aware that work records were being shifted based on their experience as section managers, although there may have been slight differences in the level of awareness from person to person. With an awareness of work shifting, managers drafted their factory business plans. Motives and background To sustain the defense and space businesses, the Kamakura Works and the Communication Systems Center adopted a management style that focused on maintaining overall profit for the business as a whole. Factories reduced loss amounts and prevented contract fee reductions, or reimbursements, by assigning target work that had been calculated according to target costs. Work records were shifted from unprofitable to profitable orders to prevent actual work from exceeding targets. If actual work exceeded a target, any unrecorded work could lower the direct work rate (ratio of work hours to recorded work), which was used as an index for determining staff size. Section managers, therefore, shifted work records to maintain direct work rates and [...]
The post Mitsubishi Electric Announces Results of Internal Investigation Regarding Overcharged Expenses and Countermeasures appeared first on Automotive World.