oshiba CEO resigns over $1.

2 billion accounting scandal

By Sophia Yan, CNN Money
Updated 11:30 AM PHT Wed, July 22, 2015
3

(File photo)

Hong Kong (CNNMoney) — Toshiba's chief executive and president Hisao Tanaka
resigned Tuesday over an accounting scandal that has rocked the company.

Eight board members, including vice chairman Norio Sasaki, have also resigned their
posts as part of a major management reshuffle. Toshiba's current chairman, Masashi
Muromachi, was named interim president.

Japanese conglomerate Toshiba, which makes everything from consumer electronics to

nuclear energy technology, has been under fire for months over accounting
irregularities. The company overstated profits by 151.8 billion yen ($1.2 billion) over a
seven year period, according to the findings of an independent committee.

Toshiba "takes the situation it has caused very seriously and we deeply apologize to our
shareholders, investors and all other stakeholders," the company said in a letter to
investors on Monday. "After examining the report ... the company will take procedures to
correct past financial results as necessary."

The headache started in April, when Toshiba itself began investigating accounting
practices in its energy division. Things got worse in May, after the company said an
independent committee would be taking over the review. Toshiba even canceled its
year-end dividends and postponed earnings, prompting analysts to downgrade
investment recommendations and earnings forecasts.

Shares of Toshiba have dropped around 20% since early April when the accounting
issues came to light. The company's market value is hovering around 1.673 trillion yen
($13.4 billion).

Full-year earnings are due on August 31, and analysts at Bernstein expect Toshiba's
stock to continue to drop.

Toshiba was founded in 1875, and quickly made a name for itself introducing
technological advancements in Japan from electric washing machines to refrigerators,
and later, the world's first color TV. It's now one of the world's most recognizable
consumer electronics brands.

This story was first published on CNN.com, "Toshiba CEO resigns over $1.2 billion
accounting scandal"
Philippine bank penalized for $35-million fraud
By
BusinessMirror
-
November 28, 2017

The Philippine Central Bank penalized Metropolitan Bank & Trust Co. (Metrobank) by suspending
some officials and ordering it to set aside funds following an internal fraud that cost the lender P1.75
billion ($35 million).

Sanctions ranged from a reprimand to the suspension of directors and officers who were
complacent in their duties, the Bangko Sentral ng Pilipinas (BSP) said, without naming them. The
nation’s second-largest lender was ordered to allocate about P4.45 billion of its capital to cover
higher operational risk, the Central Bank said in a statement. There was no mention of a fine.

The stock rose after the action put an end to a probe that began in July, when the police arrested a
Metrobank official on suspicion of loans into fake accounts that were transferred to other private
accounts she owned.

The lender said in a statement that no customer was affected, describing it as an “isolated incident”
where the suspect acted alone, has been apprehended and cases have been filed against her.

“The Central Bank sanctions have long been anticipated by the market,” said Charles William Ang,
an analyst at Col Financial Group Inc. in Manila. “The fraud incident had been a drag on the
lender’s shares and now that the regulator’s probe is finished, it clears any uncertainties.”

Metrobank advanced as much as 2.1 percent in Manila trading, bucking the Philippine benchmark
index’s 1.3-percent drop. The stock has climbed 32 percent this year.

In deciding the penalties, the Central Bank said it took into account Metrobank’s strong financial
condition and the corrective actions the company took to contain further financial damage. The
lender owned by billionaire George Ty is sound, the regulator said.
Metrobank said it absorbed the losses from the fraud in the third quarter and will implement the
Central Bank order.

“Whatever losses from the fraud have been accounted for by the bank, which addressed the issue
early on,” said Eleanor Reyes, an analyst at Unicapital Securities Inc. “Fundamentally, Metrobank in
itself is doing well and, if you look at the overall size of the bank, the fraud was an isolated case and
just a small part of its operations.”

Separately, Metrobank acknowledged on Tuesday the examination concluded by the BSP on the
P1.75-billion internal fraud case.

The bank appreciates the BSP’s affirmation of Metrobank’s strong financial condition, safety and
soundness.

The board and senior management accept accountability and command responsibility for the
incident and commits to implementing the directives. Metrobank assures the public that bank
operations remain business as usual.

After conducting a 100-percent audit, the bank reiterates that no customer was affected. This is an
isolated incident. The perpetrator acted alone and for her sole benefit. She has been apprehended
and cases against her have been filed.

Metrobank proactively reviews and improves its systems, which is exactly how the fraud was
detected. The bank’s control framework remains effective and even stronger. Thus, the BSP
recognized the immediate actions taken by Metrobank, as well as the medium- to long-term
initiatives that will serve to further improve governance, compliance and control.

With P2.0 trillion in assets and P210 billion in equity, Metrobank is in a strong position to set aside
P4.45 billion of capital reserve, in line with the BSP’s directive.

In addition, the bank has proactively absorbed the entire amount related to this incident in the third
quarter. Despite this, the growth momentum of the bank remains robust and results for the year are
ahead of plan.
10. Five Businessmen Tax Evasion

Amount: $3.3 million

Year: 2015
The Bureau of Internal Revenue (BIR) accused Lebite, Purdura, Sano, Core, and
Stardent for avoiding paying taxes. The enterprises come from various economy areas,
from sales of general merchandise to port terminal support services. Obviously, the
owners had one thing in common.

9. Royal Manchester Five Trading Corporation (RMF) Pyramid

Amount: $4 million
Year: 2008
This is the first of the pyramid schemes to encounter on this list of biggest accounting
scandals in recent years in the Philippines. How does it work? It is a rather simplistic, but
eventually unfair principle. A company, such as this one, promises to deliver its investor
a certain amount after the defined period. How does he/she get the revenue? By asking
friends, relatives, acquaintances to join in and invest. The company initially is able to
provide regular payments to its investors. However, this course of action must come to
an end since it is practically impossible to sustain forever. It usually lasts for a couple of
years at best until the founder(s) takes what money is left (usually a very high sum) and
flees the country. Fun fact: such companies usually have an eye catching and appealing
names.

8. Legacy Group Scam

Amount: over $9 million

Year: 2008
This “swindling syndicate” contributed to the collapse of 12 rural banks and 3 pre-need
companies. Late Celso Delos Angeles was behind it all (no angel there, that’s for sure).
Once again, another money grabbing “hybrid five years” scheme was introduced and
lured the naïve Filipinos to “invest” their money in a program which was to ensure their
financial future. Now, let’s see what else we have on the list of biggest accounting
scandals in recent years in the Philippines.
7. 7. Franc Swiss Fraudulent Investments

Amount: almost $20 million

Year: 2007
One more HYIP, or a high-yield investment program that went completely wrong
for the ones who trusted it. It offered 4.5% interest per day for 60 days on a
minimum investment of $1,000. Far from being modest, Franc Swiss promised to
make millionaires from its unsuspicious customers. The headquarter was actually
located in the States, in Utah. The same ending as for the other ones. The website
crashed along with the shattered dreams of getting rich quick for the customers,
and the founder.

Bangladesh Bank Hacking Scandal

Amount: $81 million
Year: 2016
This amount represents the sum which ended up at the Philippines. Chinese
thieves hacked into a server of Bangladesh Central Bank (!) and actually tried to
withdraw $951 million which now makes it one of the biggest accounting scandals
in recent years in the Philippines. Fortunately, their plan failed. The $81 million
went to four accounts of RCBC, a commercial banking corporation. This crime was
mostly covered by the media since a country was being robbed, not just a random
individual. The attempted crime did come with prospective consequences for the
Philippines market since it appears unreliable with having such a large sum
transferred onto their accounts. It created a really bad image for them, to say the
least.

ZTE-NBN Network Bribery Case

Amount: $197 million
Year: 2008
The above number stands for how much the contract with the Chinese government
was overpriced. Naturally, the money was intended to go to the criminals’ pockets.
ZTE stands for Zhongxing Telecommunication Equipment Co., a Chinese
government-backed corporation, and it was supposed to develop a nationwide
broadband network (NBN). The whole deal’s worth was $329.4 million. In short,
something went wrong with the plan and suspicions arose when the contract
mysteriously vanished into thin air just one day after it was signed.

Doubts hound KPMG following 2GO accounting scandal

But KPMG RG Manabat says that its audit was based on the 'judgment and estimates'
made by 2GO management during that period

Chrisee Dela Paz and Sofia Tomacruz

Published 5:30 PM, July 13, 2017
Updated 5:31 PM, July 13, 2017

MANILA, Philippines – The reputation of KPMG RG Manabat & Company, one of the
top 5 auditing firms of listed companies, is on the line over alleged inflated financial
statements of 2GO Group Incorporated, which are now being investigated by the
Securities and Exchange Commission (SEC).
Other than 2GO, KPMG RG Manabat has also been the auditor of 34 other listed firms

– such as San Miguel Corporation – over the last few years.

Other firms being audited by KPMG include Asian Terminals Incorporated, Cosco
Capital Incorporated, DoubleDragon Properties Corporation, Macay Holdings
Incorporated, and PhilWeb Corporatiion.

In a statement released on Tuesday, July 11, KPMG RG Manabat said it is confident

that its audit was "in compliance with the Philippine Standards on Auditing."

"Those standards require that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatements," it added. (READ: 2GO management,
auditors may face over P1-M fine)

Required reports

Companies with securities registered with SEC as well as those pubicly listed are
required to disclose annual and quarterly financial reports. These are important
documents that investors and stockholders examine when making a business decision
to partner with or invest in a company.

Rule 68 of the Securities Regulation Code also requires publicly-held companies to file
financial reports that are accurate, truthful, and complete and prepared according to a
set of "Internationally Accepted Principles of Accounting."

Under SEC rules, these must also be examined and reported by internal and
independent auditors to ensure that details in reports are accurate and true.

"Financial statements originate from the company’s finance officials. Aside from external
auditors, they will also be held liable if proven there is fraudulent misrepresentation, or
even deficiencies, meaning they failed to comply to international financial reporting
standards. That's under Rule 68," SEC chairperson Teresita Herbosa said on the
sidelines of an event in Makati City on Tuesday.

Roberto Manabat, a local partner of KPMG, should be well aware of this as he was the
first General Accountant of SEC. In this capacity, Manabat helped to put in place
standards for the review of financial statements submitted by listed companies.

What's being investigated?

2GO last week restated its 2015 and 2016 financial statements, after a special audit
requested by the firm's new management – a development that is turning out to be a
major accounting scandal.

The restated financials pruned a whopping 90% off 2GO's net income in 2015 to
P109.131 million. It also turned out that its 2016 net income should have been 74%
lower than what was reported.

The special audit conducted by SGV & Company also showed that in the 1st quarter of
2017, there was a net loss of P264.86 million, instead of the earlier reported net income
of P267.562 million.

Sharon Dayoan, vice chairperson and head of audit of KPMG RG Manabat, told
Rappler on Thursday, July 13: "The restatements that you now see in the news are
essentially relating to items of judgment and estimates made by (2GO's) management.
When we did our audit, it was an audit on the judgment and estimates made by
management at the time that we had to deliver our opinion."

But questions now persist as to whether the buy-in price of the group of Dennis Uy and
SM Investments Corporation – which recently acquired stake in 2GO – was bloated,
too, assuming the financial reports were inflated.

The restated financial statements came after SM Investments Corporation acquired a

34.5% stake in 2GO's parent company for $124.50 million. Coincidentally, Manabat has
also been an advisor to the board of SM Investments Corporation for good corporate
governance since 2016. (READ: How SM Investments acquired stake in 2GO)

Market share

Data from the Philippine Stock Exchange (PSE) showed that the top 5 external auditing
firms as of December 2016 are the following:

 Sycip, Gorres, Velayo & Company (SGV)

 Punongbayan & Araullo
 KPMG RG Manabat
 Reyes, Tacandong & Company
 Isla Lipana & Company

Together, these 5 external auditing companies cater to 86%, or 261 of the 304 total
companies listed on the local bourse. (Editor's note: KPMG RG Manabat is the auditor
of Rappler)

The remaining 14% of PSE-listed companies are audited by 23 other external auditing
companies.
Data from the PSE likewise showed that more than half of the listed firms’ financial
statements – 54% to be exact – are checked by SGV.

This means that SGV double checks the numbers and overall financial performance of a
majority of the country’s most valuable companies, which include those led by the likes
of the Sys, Ayalas, Gokongweis, Aboitizes, Lopezes, and Manuel V. Pangilinan.

KPMG RG Manabat and Punongbayan & Auraullo follow SGV, auditing a combined
24% of listed companies.

Moreover, KPMG RG Manabat and Punongbayan split this evenly with about 12% of
PSE-listed companies audited by each.

SGV and breakaway groups

In the case of 2GO, SGV used to be its external auditor. However, in 2014, the Board of
Directors of 2GO replaced SGV with KPMG.

Former 2GO chief Sulficio Tagud Jr told Rappler the decision was because of a "major
disagreement with SGV on the matter of treating the deferred tax asset during a 2013
audit."

This issue was escalated up to the level of the SEC, Tagud said.

SGV used to be the go-to accounting firm of almost all listed firms in the local exchange.

Washington Sycip, an icon of Philippine business who founded the local accounting firm
after World War II, has a vast network of clients, especially Who’s who in Philippine
business.

However, infighting in SGV led to partners putting up their own firms. The local partners
of KPMG – Roberto Manabat and Emmanuel Bonoan, as well as their predecessors,
Mario Mananghaya and Jaime Laya – and the founders of other industry competitors
are mostly or all SGV alumni.

The collapse of Enron, which was audited by SGV’s former foreign partner, Arthur
Andersen, also shook up the local industry as global giant Ernst & Young decided to
drop its local partner, Punongbayan & Araullo, to join forces with the dominant SGV.

As the Philippine economy grew and as more multinational companies set up shop
here, SGV’s competitors aligned with Ernst & Young’s global rivals, further reducing
SGV’s dominance over the years.
KPMG RG Manabat has been among the beneficiaries of these shifts.

Due process

When it comes to choosing an external auditor to go over the financial performance and
details of a company, a company’s board and management has the power to choose
who it employs to carry out this task.

Below is a list of external auditors most frequently chosen by the 304 listed companies.

For now, the investing public needs a firm answer as to whether there are deficiencies
in 2GO's earlier financial statement

Fraud in accounting estimates

0

GINA S. DETERA

As an audit group, our team considers the impact of accounting estimates based on
management assessments, judgments and assumptions in a company’s financial
statements.

If you have heard news about financial scandals, with some leading to the closure of
companies and the suing of their CEOs and CFOs, you would realize that most of the
misstated financial items resulted from fraud – or the intentional misstatements of balances
– using the management’s estimates and judgments. Examples of these include using the
longer estimated useful life of assets, which results in bigger-than-actual profits and
overstated assets; capitalizing expenses when these should be expensed, resulting in
overstated profits and assets; using wrong assumptions to show bigger recoverable
amounts for an asset that should be impaired, again resulting in misstated profits and
assets; and avoiding provisions for claims/liabilities that would understate expenses and
liabilities, resulting in bigger profits.

How do we make a fair conclusion on the reasonableness of accounting estimates based

on management estimates, assumptions and judgments? If material accounting estimates
have a significant impact on the company’s financial statements, much information should
be gathered, including understanding the process used in determining these estimates. We
would consider in our audit the test of controls surrounding the determination of estimates.
As auditors, we must practice professional skepticism and consider fraud in our audit.
Despite the above steps, some audits may still fail and may not be able to uncover the
misstatements. Management plays an important role in making sure that the balances are
free of material misstatements.

As an auditor, and I’m not making excuses here, it would be difficult to uncover
misstatements if the management and the finance people connive in committing fraud and
misstating financial statements. We do ask the management in every audit whether they are
aware of fraud in their organization, or if they are comfortable with existing controls, and
whether these controls are operating effectively to detect and even prevent fraud. The
common answers that we get are: 1) fraud is not happening, 2) they are not aware of any
fraudulent activities that will have significant financial impact, and 3) controls are operating
effectively. If a material fraud has been committed even with these answers, the most likely
true situation is that there is undisclosed fraud, and that controls, procedures and policies
may have not been complied with or are not really operating effectively.

At the end of the day, we go back to the basics of good internal controls, which include the
tone at the top management’s commitment to integrity and doing the right thing. Some of
the questions to ask are the following:

How does management communicate its targets and objectives for the year?

Are there undue pressures created by reiterating the need to meet revenue and profit
targets; are there key performance indicators (KPIs) that will translate to bonuses for both
management and employees?

Does management equally emphasize the need to adhere to policies that will dictate
accurate sales reporting: Did sales really occur? Were products delivered and accepted by
customers? Can the company enforce collections?

Does management ensure completeness of expenses accrued in the books to show the
proper amount of net profit for the year?

Are we compliant with tax rules and will we report the right amount of income for income tax
purposes?

In all these, being able to hire and retain competent people with the right values is very
important. A person’s character, values and attitude in the workplace are fundamental.
These are as important as, or sometimes even more important than, someone’s technical
skills. Why would an employee who is technically good choose to compromise a good job
with a temporary gain? An example would be the story of an accounting clerk who created a
fake company account and forged signatures to channel some of the company’s collections
into his personal account. He is technically good in being able to hide such fraud for a long
time, but not wise enough to realize that the time will come when this will be uncovered, and
that this has only earned him temporary gain.
Isn’t this also true for those involved in big financial scandals? Would such cases ever
happen if people had the right values, and if management had been very clear that doing
the right thing is just as important as meeting revenue and profit targets?

Management estimates, assumptions and judgments can be reasonable but as disclosures

in the financial statements go, “Estimates, assumptions and judgments are continually
evaluated and are based on historical experience and other factors, including expectations
of future events that are believed to be reasonable under circumstances. Management
makes estimates, assumptions and judgments concerning the future. The resulting
accounting estimates will seldom equal the related actual results and have a significant risk
of causing a material adjustment in the company’s financial statements within the next
financial years.”

Years of experience in doing the audit of a company; understanding the industry and the
nature of the transactions; the auditor’s view and assessment of the company’s processes
including controls; management commitment to controls – all these will provide the basis for
a conclusion on the reasonableness of accounting estimates. While these are significant
financial items, a more careful audit process will be necessary, with the expectation that the
estimates will not materially be different when the actual amounts are determined.

First stock broker found

guilty of securities fraud
fined P2M
By: Christine O. Avendaño- @inquirerdotnet
Philippine Daily Inquirer / 09:27 PM March 31, 2013

MANILA, Philippines — The president of a stock brokerage house was fined P2.1
million by a Makati regional trial court after he was found guilty of defrauding his
clients in violation of the Securities Regulation Code (SRC), the first conviction
secured by the government almost 13 years after the law was enacted.

The Department of Justice relayed to reporters the case of Francisco Borromeo,

president of Asian Capital Equity Inc., (ACEI), who was found guilty on March 19 by
branch 62 of the Regional Trial Court of Makati City of seven counts of violation of the
SRC, mostly involving fraudulent acts he committed between August 1993 and
November 2003.
–– ADVERTISEMENT ––

Borromeo had been charged with violations of the Republic Act. No. 8799 in seven
information filed by the DOJ’s National Prosecution Office and the Enforcement and
Prosecution Division of the Securities and Exchange Commission.
ADVERTISEMENT

He was charged of five counts of fraudulent transactions from 2000 to 2003 for selling
and trading the shares of his clients without their knowledge; using a fictitious and
dummy account in the selling of securities, all to the prejudice of his clients and the
investing public.

Borromeo was also charged with one count of unlawfully preparing, using and
maintaining two sets of books—one that contains the actual database of ACEI’s
negative position and another that contains the altered database to comply with the audit
requirement of the Philippine Stock Exchange and SEC.

Borromeo pleaded not guilty on all seven pieces of information against him in 2007.

But last March 19, he expressed his desire to withdraw his not guilty plea and instead to
plead guilty.

State Prosecutor Peter Ong did not object and Borromeo was arraigned anew this time
pleading guilty to all seven information.
 In a four-page decision by Presiding Judge Selma Palacio Alaras, the trial court then
found Borromeo guilty beyond reasonable doubt of the crime of violation of the SRC.
He was sentenced to pay the fine of P300,000 for each count or a total of P2.1 million.

“In the event of failure to pay the fine, he is ordered to suffer a subsidiary imprisonment
corresponding to the fine adjudged,” the court said.

Philippine Bank
Penalized for $35
Million Fraud; Shares
Rise
By
Cecilia Yap
and
Siegfrid Alegado
November 28, 2017, 10:20 AM GMT+8 Updated on November 28, 2017, 3:22 PM GMT+8

 Ordered to allocate capital for risk, directors suspended

 Metrobank says it absorbed fraud amount, to set aside more

The Philippine central bank penalized Metropolitan Bank & Trust Co. by suspending
some officials and ordering it to set aside funds following an internal fraud that cost
the lender 1.75 billion pesos ($35 million).

Sanctions ranged from a reprimand to the suspension of directors and officers who
were complacent in their duties, the Bangko Sentral ng Pilipinas said, without naming
them. The nation’s second-largest lender was ordered to allocate about 4.45 billion
pesos of its capital to cover higher operational risk, the central bank said in a
statement. There was no mention of a fine.

The stock rose after the action put an end to a probe that began in July when police
arrested a Metrobank official on suspicion of funneling loans into fake accounts that
were transferred to other private accounts she owned. The lender said in a statement
that no customer was affected, describing it as an “isolated incident” where the
suspect acted alone, has been apprehended and cases have been filed against her.

“The central bank sanctions have long been anticipated by the market,” said Charles
William Ang, an analyst at Col Financial Group Inc. in Manila. “The fraud incident
had been a drag on the lender’s shares and now that the regulator’s probe is finished,
it clears any uncertainties.”

Shares Rise

Metrobank advanced as much as 2.1 percent in Manila trading, bucking the Philippine
benchmark index’s 1.3 percent drop. The stock has climbed 32 percent this year.

In deciding the penalties, the central bank said it took into account Metrobank’s strong
financial condition and the corrective actions the company took to contain further
financial damage. The lender owned by billionaire George Ty is sound, the regulator
said.

Metrobank said it absorbed the losses from the fraud in the third quarter and
will implement the central bank order.

“Whatever losses from the fraud have been accounted for by the bank, which
addressed the issue early on,” said Eleanor Reyes, an analyst at Unicapital
Securities Inc. “Fundamentally, Metrobank in itself is doing well and if you
look at the overall size of the bank, the fraud was an isolated case and just a
small part of its operations.”
— With assistance by Norman P Aquino, and Ditas B Lopez