A case in which a company’s improper accounting practices were investigated and disciplinary action was taken against the parties involved
Outline of the case
At X, a family-owned company, the founder’s personal assets and the company’s assets remained unclear. The officer in charge of accounting had been performing general affairs and accounting duties under the founder for 20 years. When the founder retired and the new management checked the accounting, it was discovered that improper accounting procedures had been performed with the founder.
Establishment of Investigation Committee
The company requested that our firm conduct an investigation to determine whether the accounting treatment was appropriate, based on concerns that company assets may have flowed to the founder for no reason. Based on our understanding that this issue could lead to a serious breach of trust, we engaged an outside accounting firm to conduct an investigation in order to ensure objectivity in the investigation.
We confirmed the accounting books, including the ledgers, and interviewed several persons involved in the company. We then conducted interviews with the officers who had been in charge of accounting, which ultimately led to our decision to conduct an interview with them. As a result, as a summary of the investigation results, we prepared a report stating that the accounting procedures previously performed were not appropriate, which was to be submitted to management.
Based on the investigation report submitted by our firm and others, the management of the company decided to take disciplinary action (a warning and a pay cut) against the persons involved.
Objectivity of fact finding
When taking disciplinary action, it is necessary to distinguish between whether the fact-finding was appropriate and whether the disciplinary action is appropriate. Although the company can conduct its own investigation into fact-finding, it is preferable to consider having an outside expert join the investigation committee in order to ensure objectivity. Although there will be many instances of questionable facts, it is not appropriate to take disciplinary action solely on the basis of suspicion, despite the lack of objective evidence.
Reasonableness of disciplinary action
The company will have to make its own decision at its own discretion as to what disciplinary action to take against the employee in question. However, if an attorney is consulted, he or she can research past disciplinary cases and court decisions at other companies to see what actions have been taken in similar cases, and can understand the general direction as to whether there is an abuse of discretion based on court decisions.