EXCLUSIVE:Samsung OZ Audit Hit Squad Probe MDF Payments & High Level Of Korean Staff

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New dramas unfolded yesterday as the giant Samsung Corporation stepped up a snap audit of their Australia Operation, Samsung Electronics Australia, with revelations that the company is now looking at the “high” employment levels of Korean nationals in the company following complaints of divides between Australian and Korean management.

We can also reveal that two complaints about the use of marketing development funds by the IT division of Samsung Australia have been lodged with the Samsung Corporation via a company “dob” Intranet site called samsungaudit.com. This site allows employees globally to secretly report misuse of funds or to report people working in the company who are not complying with company procedures.
Last week a 13 strong Samsung Corporation audit team, descended on Samsung Australia to investigate the links between senior Korean management at Samsung Australia and Korean owned companies operating In Australia, who have the exclusive rights to the distribution of Samsung “seconds”. The same company, QQ Discounts is also responsible for determining which products would be classified as seconds. (See original story here).   
Now questions are being raised about the “high level” of local Koreans employed by Samsung Australia. These executives primarily report to other Korean executives who are being investigated by the audit team over the allocation and selling of Samsung “seconds” via QQ Discounts Pty Ltd.
We have also been able to confirm that last Friday, CEO of QQ Discounts Harrison Kim, a former Samsung Australia IT executive, quit his role after it was revealed that 13 auditors from Korea had flown to Australia. (See separate story here).
The auditors have on two occasions been given access to the financial records of QQ Discounts.
This week auditors spent several hours interviewing local HR staff after it was revealed that over 20 percent of Samsung Australia’s staff were Korean or naturalised Australian Koreans who primarily reported to senior Korean management at Samsung Australia.

 
Allegations have been made to auditors by both current and former senior executives during exit interviews that a culture of “Them” and “Us” had developed in the company between senior Korean management and local Australian management.
This according to sources resulted in the two groups “not having respect for each other” and that information was not passed between the two groups. 
Other allegations centre on the high level of staff turnovers at Samsung by non-Korean management who in exit interviews said that they had difficulty working with senior Korean management in the company.  
In several western markets Samsung subsidiaries like the UK and USA are primarily staffed by local employees.
A senior executive still working at Samsung Australia, said: “There is definitely a culture of them and us. This is not productive and I think that the audit team are awake to the issues that have developed by this culture. There is speculation that several senior Korean Managers will be forced to leave the Australian operation. This has happened in other countries like Indonesia and China due to bribery allegations,” they added.
“In Australia, questions are being asked about inducements that may or may not have been paid to employ Korean nationals at Samsung Australia. 
“The fact that the Samsung Corporation are listening to complaints is excellent as it reveals that there is a culture of accountability in the organisation, and that they are prepared to act on complaints.
“There is strong speculation that senior Korean management will be replaced in Australian similar to what has happened in other companies like Sony and Panasonic.” 
In other developments ChannelNews has been told by a current Samsung Australia employee and a former senior executive Joe Serra, who worked in Samsung Australia’s IT Division that two employees used a secret Samsung “dob” in service at samsungaudit.com, which is an internal web site to register anonymous complaints about the distribution of marketing development funds by the IT Division, which is headed by Philip Newton a former VP with BenQ.
According to the complaints, millions of dollars were given away to distributors in an effort to grow Samsung’s IT market share without any proper control of what marketing promotions were being undertaken by distributors including Ingram Micro.

 
The distributors were accused of pocketing the money without any expenditure on promotions which the MDF dollars were intended for.
According to several sources, orders were placed on the Samsung Corporation for products at full wholesale prices without any disclosure that Samsung marketing dollars had been used to secure the order in the first place.   
According to Serra he was aware of the MDF practise. He said: “This is a very dangerous way of securing business. It is short term, lowers the perceived value of a product and makes it difficult to come back and sell at a full price again. You do it when you want to buy business”.
He added: “When new management took over the IT division, 12 months of MDF allocation was spent in 8 weeks with no real return on value other than orders to the factory that went up. This is contrary to the SOX audit practises that Samsung are supposed to be adopting”.  
Several years ago, Samsung along with several other global technology companies adopted the principles of the Sarbanes-Oxley Act of 2002, which is often referred to as SOX or the ‘Public Company Accounting Reform and Investor Protection Act’ as well as the ‘Corporate and Auditing Accountability and Responsibility Act’. This Act set new or enhanced standards for all public company boards, management and public accounting firms operating in both the US and global markets.
The bill was introduced as a reaction to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom. These scandals, which cost investors billions of dollars when the share prices of affected companies collapsed, shook public confidence in the nation’s securities markets.
One part of this act relates to the issuing of an order to a Corporation by a subsidiary for products or services that may not reflect the true value of the products being purchased.
For example, when marketing development funds or MDF funds are given to a distributor in an effort to secure an order at a set price, this is deemed as not reflecting the true value because funds have gone from one entity to another entity without any rigorous control of where those MDF are being spent.
Nor does the order reflect the true value of the order being placed on a Corporation.
Samsung Australia has refused to comment on these issues due to an ongoing investigation by auditors.
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