Notice of Misconduct in the Clean Robot Division

On August 10, 2011, inappropriate accounting treatments in the Clean Robot Division were pointed out during a tax inspection by Tokyo Regional Taxation Bureau. Internal investigations conducted thereafter raised suspicion that in addition to the inappropriate accounting treatments, improper claims occurred for the projects commissioned and subsidized by METI, NEDO and JST. On October 5, 2011, an internal investigation committee including lawyers and accountants was formed and started further investigations by clarifying financial flows including those to and from suppliers and questioning persons involved. The committee’s investigations have revealed that improper claims occurred and at the same time, accounting irregularities such as window dressing of performance of the Clean Robot Division occurred, at the direction of the former general manager. FHI has reported the facts to METI and other relevant authorities.

(1) FHI has incurred damages of approximately 106 million yen by the accounting irregularities such as window dressing of performance of the Clean Robot Division and misappropriation of company funds for personal or other use.
(2) Approximately 194 million yen was obtained through the improper claims for the commissioned projects and the subsidized projects.

(1) Outline of the accounting irregularities

(2) Action taken against the former general manager

FHI filed a criminal complaint today against the former general manger for fraud with Tochigi Police.

(1) Outline of the improper claims for the commissioned projects and the subsidized projects

Out of approximately 1,056 million yen received for eight projects commissioned or subsidized by METI, NEDO and JST, including the Development Project for Intelligent Technologies of Next-generation Robots and the Project of Support for Creating Service Robot Market, approximately 194 million yen was received through improper claims made by the former general manager. The improper claims were made by padding expense claims for the commissioned projects and the subsidized projects based on fictitious orders to and padded bills from suppliers for parts manufacturing work and drawing, etc. and to cover internal labor cost, etc. The funds obtained through these improper claims were used to create false accounting entries. The amount of funds received through the improper claims was revealed by the internal investigations and may change upon investigations by the relevant authorities.

(2) Return of funds obtained through improper claims

FHI will return the funds obtained through the improper claims for the commissioned projects and the subsidized projects, based on findings of investigations by the relevant authorities.

(1) Motives for misconduct

At first, the former general manager manipulated the division’s accounting to generate funds to use without going through the proper procedures of the company and to inflate the division’s accounting figures in order to avoid a deficit at year end. Later, the former general manager started to transfer funds to the companies he was involved in for their incorporation for the purpose of conducting the Clean Robot business privately at the companies.

(2) Causes for misconduct

Because the market for the service robots is extremely small at this point in time and the former general manager had a certain reputation in the industry, he was in a situation that he could conduct the business of the division in his discretion using his connections and influence. In addition, because the Clean Robot Division is a new business unit, is small in size and has little working relations with other units of the company, the division was in an environment where daily operations were conducted without consensus with other sections. The former general manager utilized such unusual circumstances and environment described above and committed misconduct by using shrewd tricks, such as falsifying vouchers in conspiracy with the suppliers.

(1) Reorganization of business control system

To separate line and staff authorities for any scale of business, and rotate personnel who stay in the same post for a long term.

(2) Strengthening of preventive function for accounting irregularities

To provide internal education for persons handling payment and approving payment, and strengthen the management of suppliers by monitoring implementation of screening standards and procedures for suppliers.

(3) Strengthening of internal audit system

To review the system of the Internal Audit Department and strengthen the function to detect misconduct in any department or line of business.

(4) Reconfirmation of compliance

To provide compliance education for all the officers and employees again and ensure that all of them are informed of the Compliance Hotline.

FHI dismissed the former general manager of the Clean Robot Division on disciplinary grounds as of February 17, 2012. FHI will also strictly treat other persons involved in the matter.

FHI estimates that this matter has little effect on the company’s financial condition.

FHI will review the business of the Clean Robot Division with a view to downsizing and withdrawing from the existing business in the future. The division will continue to conduct its business as a part of the company for the time being, but will not accept a new order. Upon completion of delivery to the customers of the products already ordered, the division will focus on maintenance and after-sales services of the products.

(1) History

1989 Started full-scale research on automation of cleaning equipment at Subaru Research Center Co., Ltd.(at the time)
1992 Delivered the first model of cleaning robot
1999 Put an elevator boarding system for floor-cleaning robot into practical use
2005 Displayed an outdoor cleaning robot and an outdoor garbage can carrying robot at the 2005 World Exposition, Aichi, Japan
2007 Put a robot system capable of cleaning outdoor common area in apartments into practical use
2009 Developed a farming robot and a robot system capable of cleaning office area

(2) Employees

Regular employees: 7
Temporary employee: 1
Total number of employees: 8

(3) Financial performance

Sales for the fiscal year 2010: 217 million yen