The Japanese Board of Audit recently conducted a comprehensive investigation into the government’s “IT Introduction Subsidy” program for small and medium-sized enterprises (SMEs), revealing serious fraudulent activities. This subsidy scheme, originally intended to help SMEs improve productivity by introducing advanced IT tools, has been exploited by some unscrupulous individuals, resulting in substantial financial losses.

The investigation results show that between fiscal years 2020 and 2022, the Board of Audit identified 41 clear cases of fraud, involving a total of 108.12 million yen. These fraudulent activities primarily manifested in three forms: first, companies supported by suppliers obtained subsidies by submitting false IT implementation reports; second, companies received kickbacks from suppliers’ affiliated companies as referral fees; and third, some companies essentially received IT services for free or earned profits exceeding their own contribution. These actions severely undermined the original intention of the subsidy program and harmed the interests of the government and taxpayers.

In addition to the confirmed fraud cases, the Board of Audit also discovered 88 suspicious cases similar to kickbacks, involving 253.52 million yen. While these cases cannot be definitively classified as fraud, they highlight issues in the project’s execution. More worryingly, if including the business portions not grasped by the Service Design Promotion Council (SAKYO), which is responsible for the procedures, the total amount in question reaches a staggering 956.48 million yen. This figure suggests potentially larger management loopholes in the IT subsidy program.

Given the severity of the situation, the Audit Committee on the 21st requested the Small and Medium Enterprise Innovation Agency, the independent administrative institution responsible for the program, to take action. The agency was asked to return the fraudulently obtained funds to SAKYO to rectify the error. In response, the Small and Medium Enterprise Agency of the Ministry of Economy, Trade and Industry expressed deep regret and promised to take strict measures against companies that received fraudulent payments. This response demonstrates the government’s level of concern about the matter.

As a direct response to the fraudulent activities, SAKYO implemented disciplinary measures in July this year. The registration qualifications of 15 involved suppliers’ supporting companies were revoked, meaning they can no longer participate in the subsidy program. Furthermore, SAKYO is urging these suppliers to voluntarily return funds from more than 1,930 other projects, totaling approximately 5.7 billion yen. This measure aims to recover losses to the maximum extent while conducting a comprehensive investigation into other potential violations.

However, the Board of Audit’s investigation also revealed deeper issues. The report pointed out that SAKYO had never conducted on-site investigations of companies and suppliers despite knowing about suspicions of fraud. This finding highlights serious deficiencies in the project’s monitoring mechanism. The Board of Audit therefore recommended establishing a more effective supervision system to prevent similar incidents from recurring. If implemented, this recommendation will help improve the transparency and credibility of the entire program.

Key points:

• The Japanese Board of Audit investigation uncovered large-scale fraud in the “IT Introduction Subsidy” program.
• 41 fraud cases were identified between fiscal years 2020-2022, involving 108.12 million yen.
• Fraudulent methods included submitting false reports, receiving kickbacks, and obtaining improper benefits.
• The Board of Audit also found 88 suspicious cases involving 253.52 million yen.
• The total amount in question could be as high as 956.48 million yen.
• The Audit Committee demanded the return of fraudulent funds, and the Ministry of Economy, Trade and Industry promised strict measures.
• SAKYO revoked the registration qualifications of 15 involved suppliers and requested the return of about 5.7 billion yen.
• The Board of Audit pointed out SAKYO’s failure to conduct on-site investigations and recommended strengthening the supervision system.
• The issue has raised broader concerns about the management of outsourced government programs.