Governance and Fraud - Analysis of Toshiba and Dick Smith Case

Running head: GOVERNANCE AND FRAUD – ANALYSIS OF TOSHIBA AND DICK SMITH CASE
GOVERNANCE AND FRAUD – ANALYSIS OF TOSHIBA AND DICK SMITH CASE
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GOVERNANCE AND FRAUD – ANALYSIS OF TOSHIBA AND DICK SMITH CASE
Introduction
The paper aims to analyze the two fraud cases related to governance namely the Toshiba
case of 2015 and the Dick Smith case of 2016. First, the paper will explain fraud and the
different types of fraud. Then, the paper will examine the two cases; find the similarities and the
extent of damage the fraud causes. The paper will also provide views on the way the frauds could
have been prevented.
Fraud refers to the intentional act done to secure an unlawful or unfair gain. In simple
terms, fraud could be stated to be an effort to trick another party to achieve a benefit. Fraud is not
the same as errors because errors are committed unintentionally. A person commits an error out
of misinterpretation of facts, carelessness and oversight. Further insight into fraud will be
presented in the sections below.
Types of fraud
As explained in the introductory part, fraud is any mischief done to gain intentionally,
profit from deceiving others. Now, fraud could be of several types. Some of the types include
asset misappropriation, corruption, financial statement fraud and occupational fraud.
In asset misappropriation, any employee misuses or steals the resources of the
organization. For example, stealing of cash, false billing schemes and so on are the types of asset
misappropriation. Corruption is a type of fraud where the employee misuses her or his power and
position to influence any business transaction for her or his own profit. Conflict of interests and
bribery are the two examples of corruption. In financial statement fraud, an employee voluntarily
causes an omission or misstatement of information in the financial reports of the organization.
To cite some examples, engaging in artificial inflation of reported assets, recording of fictitious

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GOVERNANCE AND FRAUD – ANALYSIS OF TOSHIBA AND DICK SMITH CASE
revenues and such are types of financial statement frauds. Occupational fraud is another type of
fraud that generally involves asset misappropriation and financial statement fraud.
Toshiba fraud case of 2015
On 15 July 2015, Toshiba’s Chief Executive Officer Hisao Tanaka announced his
resignation over the financial accounting fraud that an independent investigation found
(Fortune.com, 2019). The investigation found that the senior management in the company has
been inflating its profits for many years. The report of the investigating agency found that the
Japanese corporate giant had exaggerated its profits by a margin of 151.8 billion yen, which is
close to 1.2 billion dollars since the year 2008 (Fortune.com, 2019). The numbers that were
shown were up three times more than the actual profit. The investigation report found that since
the Japanese company had the culture of employees not allowed to challenge the decisions of the
management, they were forced to do inappropriate accounting. These were done by postponing
the reports of loss or shifting specific costs to later years. The fraud was one of the biggest frauds
owing to the brand associated with the fraud and the amount of accounting that was involved in
it. Toshiba Corporation dates back to 1875 when it was founded and has a glorious history of
providing top quality products to the consumers. The scandal resulted in huge loss in terms of
both finance and reputation.
The Dick Smith Fraud Case of 2016
The Dick Smith fraud took place a year later in 2016 and it was based on the rebate fraud.
Dick Smith was an ASX listed private company that was bought over from Woolworths in 2012
by Anchorage Capital at a price of 115 million Australian dollars. In the year 2013, the company
was floated with market capitalization amounting to 520 million Australian dollars