Why incompetence pervades the expat accounting community in Tokyo

If you’ve been following my posts about the Lehman Repo 105 scandal, and Lehman Japan’s role in it, you know that I’ve been pointing out the pervasiveness of crap accounting in this city. Both by foreign expats coming in, and by fraudulent “CPAs” among the English-speaking Japanese.

Because scandal of any small sort tends to get whispered about at best, and more likely buried or blame-shifted, the pattern of behavior just continues. Rather than fix these problems up front, they grow and grow until it becomes a bigger problem.

I think it’s worse in Tokyo than in most major financial centers, because the corporate accounting staff come with either no credentials or no experience. Very few have the (ehem, authentic) credentials AND work experience overseas. Yes, this “Big Four” fraternity / cartel is a problem, as it is for every CPA who achieved the designation outside of the Big Four. But it’s larger than that. Quite often, the people who are making the hiring decisions about staff (“the person with the power to hire”) doesn’t know enough about corporate accounting to know who they need. They don’t know what they don’t know, because they only know so much. And that’s scary.

Most of it has to do with the “finance guy” (“finance gal?”) phenomenon, and headhunting firms who place on the buddy system and lack the inside corporate experience to discern what it really is that the client needs. (They just want to be paid for the “find”!)

I’ll pick up the story about that in a while. Now let me go to the Japanese foreign-capital-firm “talent”:

For the native born, they speak better English than the expat coming in speaks Japanese, and so nobody bothers to analyze (or verify) the resume. For the expat boss looking to fill a role in Tokyo, or the common scenario of the boss on another continent looking to fill a role in Tokyo, finding the conversation-level English Japanese accountant seems like a real deal!

And so, among the competition within that group, someone Japanese who says they are a holder of a “CPA” or even “I am a CPA in America” is like gold. Honestly, I think some of these turkeys stop the search right then and there.

But it’s Fool’s Gold, at least two times out of three. Maybe more.

Because they really aren’t CPAs at all.

Sure, some worked for a Big Four accounting firm and sat for the US CPA. Others have passed anywhere from one to all four parts of the exam portion. Even rarer are the ones who:

– sat for all four parts;

– passed all four parts;

– obtained the requisite work experience of the jurisdiction (state) in which they are licensed, AND had the same experience certified. (They may not have to have done the work in that state, but almost always the certification must be signed by a valid CPA holder who they worked for);

– filed the necessary paperwork with the proper licensing division. (In New Jersey, it’s under the Attorney General’s office.);

and

– afterwards, obtain the necessary continuing education credit hours mandated for the jurisdiction where they are licensed. (In New Jersey, it’s 120 credit hours over three years, with a mandatory 4 credit hour Ethics course as part of the requirement.)

Some states offer the “certificate”, like Delaware, which allows you to hold yourself out as a Delaware CPA certificate holder. But even there, I think Delaware requires specific follow-up after you pass the four parts. You can’t “attest” (do an audit and sign it), but for many CPAs, audit is not their line of work.

In America, not doing all the steps I mentioned and instead just holding yourself out as a CPA is at least a disorderly persons offense (i.e. crime) in most states. In some states if you take money while holding yourself out as a CPA, the grade of the crime is higher. Because it’s a kind of a fraud. (I throw in “kind of” to be nice.)

Suffice it to say, there are very few of these kind of authentic CPAs in the Tokyo foreign-firm accounting market. Usually companies that have them hold on to them like the rare finds they are.

When I meet a Japanese who holds themselves out as a CPA, I always ask “what state?” One liar in a job I had said “California”. So I checked — it’s all online. After all, “P” stands for public. It’s a power and privilege you are given by the people of that state.

Her name was not in the rolls. Later, I saw the resume she had given the company, listing under qualifications:

“US CPA 1,-3” For the life of me, I don’t know what that means. Is it in reference to parts of the exam? (There are four, unnumbered.) Is it a part 1 and 3? Parts 1 through 3 (1 – 3)? An emoticon with a double chin? But I will say this much: no one in the company had followed up on her assertion. She was at some point, and not specifically on this issue, fired. And ended up working a few months later at yet another foreign corporation’s office in Tokyo, probably using the title from the last job and maybe even the “CPA 1,-3”, too, for all I know. Because I doubt they checked . . .

The phony CPA fraud among Japanese working for our firms is just one of several problems. Another game is the “fluent” English speaker whose conversational English is much better than my Japanese, for sure, but not sufficient to match native English.

So in which case, a lot of your confidential information can end up cut-and-pasted out into English-to-Japanese translation websites.

Or “book a deferred revenue entry” may have the signs reversed, and end up as expense. It goes on all day here, and that’s why there are so many “systems problems”, and those don’t include the ones where the people go in and try to get the software to delete out their error entries from the records, rather than just post a reversal to bring the balances back to where they should be . . .

Among most Japanese working for “gaishikei” (what I’ve been calling foreign firms here, i.e. us) there is a lot of general talent in other areas. I am talking about an exception to the rule. It’s hard to find good Japanese accounting talent–usually they’re held on to tightly.

Where do I even start when it comes to the non-Japanese/foreigner “numbers guys”? By and large, the group is broken out into Lords and Serfs, and each expects the other side to know the things that they don’t—which, if you’re an accounting Serf, may be excusable. But if you’re one of the accounting Lords of Tokyo, where do you come off? You’re supposed to know this shit—it’s your job!!

But, I swear, more often than not, this is somebody who “worked for [fill in Big Four name here]”, “got my MBA after I started [fill in big name company here]”, and just played their cards right to get into a “senior” Tokyo role. They are the company’s “guy in Japan” (usually guy, sometimes it’s a woman). And as long as they keep the competition away–especially from back home!—and avoid the career blow-ups, they are going to keep their good thing going and going and going . . .

After a while, I think these guys think it’s more skill than luck. They forget where they came from. If certified, they forget which authority did the certification.

A lot of the expat accounting Serfs are younger guys starting out. They didn’t come to Japan as “numbers people”, they came from the Eikaiwa. Their headhunter buddy (who was also Eikaiwa and wanted to stay in Japan), got a job at the brand-name headhunting firm. He could use someone in his database that has anything suggesting “numbers” in it, for a “junior role” at one of these foreign corporations where the Accounting Lord needs more people to do the work that the Serfs who truly know what to do are up to their necks in.

Plus, it would help if they could find someone who actually knows or can do the things the Accounting Lord never learned on the butt-kissing ladder up.

Or sometimes it’s a job where the higher up person, again, not knowing what they should, has screwed something up and created a little puzzle. And they need an assistant to unwind the puzzle, as a multi-month “project”.

Think I’m kidding? Folks, people put all their stuff out on Linked-In. I’m floored at the detail sometimes. When I was going over Repo 105 and Lehman Japan the other day, I picked up this one, pdf file: M B C – LinkedIn.

If accurate, looks like someone who was around there the next year. Worked under a guy whose “specialty” was one of those internal house ledgers (Lehman ITS, yes, that was it) that could never tie to the (I guess, now) more authentic General Ledger.

On a project to tie cash! This is an investment bank, remember. Most of their assets are cash and things like bonds and stocks. Plus the furniture and computers. You have to reconcile cash as a project?

Prior experience? Working for Nova, the English Conversation School (Eikaiwa) that went bankrupt in October 2007, as a French teacher. Before then, worked at a bank in France. Liberal arts major (not mathematics), no formal training in any aspect of accounting shows on the resume.

I give him points for honesty, and hopes he gets his career going.

How did he get in Lehman? Placed there by one of the big Tokyo “finance” headhunting firms. After Lehman went bust, again teaching French.

Take it from me, it’s very hard for a competent person to deal with the typical gaishikei foreign Finance/Accounting department. You need special strength. Even on a “project” basis, once you get the sense that:

– the firm is really looking for someone to “adjust their spreadsheets” in a way that suspiciously looks like you would be the one effectively mispricing derivatives, (then have the project sent to Hong Kong and ask if you would go there),

– or be their accounting clerk slant financial controller, because none of the buddies hired in earlier can read, or prepare, much less understand, a journal entry,

– or spend even two weeks reconciling cash because the person who is screwing it up will only give you the ledger side one piece at a time (after they themselves are convinced the screw-up isn’t there)

you quickly move on to something else.

(Or in some cases like when the, ehem, “spreadsheet cleanup” that looks something like fraud is going to be carried out through the Hong Kong office, the project suddenly “ends”).

This is what happens when you don’t seek out competence. Worse, it is the breeding ground for schemes such as “Repo 105”. The foreign subsidiary becomes the shadows in which the dirty dealing gets carried out.

Lack of genuine accounting talent is a[n] “audit factor”. Traditionally, this meant the auditor used to verify the skills of the accounting officers he or she was auditing, not simply, “Was the guy at Ernst?” “She’s Deloitte” “Well, he has an M-B-Ayyyyyyyyyyy!”

(You pick up an MBA in two years. It teaches you nothing about actual business. Look at all the MBA screw ups in the news, and so many out of Harvard. Including the last President of the U.S.!)

When the plum accounting assignments in town stop going to the charlatans, the quality of talent in Tokyo will rise. The revolving door will stop spinning like it’s holding up a helicopter, and the people back at home offices will have many fewer headaches out of Japan.

And they won’t be hearing the “Japan is just culturally different!” excuse for every little thing.