Outsourcing Inc. (2427:TYO), the third-largest staffing firm in Japan, has wrapped up a series of investigations and announced amended financial results for the past several years. Outsourcing filed amended results on 14 November for fiscal years ending December 2019, December 2020, December 2021 and December 2022 and through the first quarter of the current fiscal year.

The amended results come in the wake of two investigations by the company into improper activity, according to a regulatory filing.

Oursourcing’s first investigation began on 29 September 2021 with the formation of an investigation committee. A report was ultimately produced on 28 December 2021. In addition, a second investigation committee was formed on 1 August 2023 and its report was received on 31 October 2023.

The investigation found that, in addition to the avoidance of impairment losses on fixed assets and the overstatement of work-in-process at its subsidiary, enable Inc., it has also turned out that revenues and expenses at the Company and its consolidated subsidiaries were overstated in the Domestic Engineering Outsourcing Business, Domestic Manufacturing Outsourcing Business, Domestic Service Outsourcing Business, and Overseas Manufacturing and Service Operation Outsourcing Businesses.

The fraudulent financial reporting identified by the outside investigation committee was the result of the concentration of authority on a few executives and employees, dysfunctional supervision and auditing by the Board of Directors and the Audit Committee, dysfunctional internal control by the Internal Audit Office, and unclear and inappropriate operation of internal rules related to accounting practices, which became the norm due to the background of excessive awareness of growth in the entire Group. The Company recognizes those have caused the neglect of the establishment of a control environment to realize reliable financial reporting, and the inadequacy of company-wide internal controls.

In the wake of the investigations, the company announced a number of measures to prevent recurrence and disciplinary action against several executive officers:

The representative executive officer, chairman and CEO is receiving a 60% reduction in basic remuneration for three months. An executive VP is receiving a 20% reduction in basic remuneration for three months. A senior managing executive officer was demoted to executive officer and is receiving a 40% reduction in basic remuneration for three months. An executive officer is receiving a 10% reduction in basic remuneration for three months.

In addition, executives at Outsourcing subsidiary Outsourcing Technology Inc. faced disciplinary action. Its president and representative director is set to resign on 30 November; a director and head of the management division at the subsidiary has already resigned.

Amid the embarrassing announcement regarding the fraudulent activity, the company had better news to report for the nine months ending 30 September 2023 with improved revenue despite inflation and geopolitical tension.

Revenue rose 9.8% to JPY 551.72 billion (USD 3.70 billion) in the nine months ended 30 September. Demand for IT engineers remained strong.

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Guidance

For the full current fiscal year ending 31 December 2023, the company forecast revenue of JPY 770.0 billion (USD 4.70 billion). There was no revision from an earlier forecast.

Share price and market cap

Shares in Outsourcing were down 4.61% to JPY 1,149 (USD 7.01) as of 9:44 a.m. Tokyo time today (15 November); they were 27.67% above their 52-week low. Market cap was JPY 155.14 billion (USD 946.4 million).