[Last One Mile Labor Union] "Even if someone uses the company card at a bar, well, that's fine": CEO Makoto Watanabe's ex-post punishment type internal control

Distributing corporate credit cards to employees to enable them to quickly purchase necessary items at their own discretion is a reasonable system, provided that appropriate spending limits, intended purposes, receipt management, and monitoring are in place.

However, the system explained by Makoto Watanabe, Chairman, President, and CEO of Last One Mile Inc., during the general affairs training of the company differs significantly from typical delegation of authority.

The concept is to accept the possibility of personal misuse in advance, issue cards in large quantities, not check all usage statements, and reduce the salary of or fire employees whose misuse happens to be discovered.

Even if someone cuts it without permission at a bar, well, whatever.

There might also be guys in the future who secretly take a credit card and ring it up at some bar without permission. Oh well. We'll swallow that risk as part of doing business.

Get your own credit card and max it out however you want. If anyone like that is discovered, they'll be penalized, fired, or have their pay cut.

Standard internal controls exist to design systems that make misuse less likely, detect it early, and minimize damage.

However, this training outlines a policy where ex-ante controls to prevent fraud are cut as administrative costs, and assuming a certain number of private uses will occur, only those who are caught are punished.

If told we need 100 cards, issue 100 cards.

Makoto Watanabe also explains that each department can simply issue the number of copies it needs.

If someone tells you they need 100 cards, you just say "Understood" and issue 100 cards.

As the number of issued cards increases, administrative risks such as loss, theft, name management, collection from departing employees, credit limit settings, user identification, and receipt collection also increase.

However, in the training, it is suggested that rather than checking the necessity of each card and the cardholder's authority in advance, distributing them widely to the field and later sampling some of them for review can reduce administrative costs.

I won't look at all of them, random is fine.

"All administrative matters can be handled after the fact. Moreover, you don't need to review everything. A random sample is fine. It's okay if you can't review everything."

Random audits are effective as a supplementary method when combined with 100% verification. However, if an organization is aware that personal misuse of cards is occurring, fails to establish a system to automatically track all transactions, and only punishes what happens to catch their eye, whether someone gets disciplined will depend on the luck of the draw rather than the severity of the misconduct.

Even with the same personal use, the employees who were singled out face salary reduction or dismissal, while those who were not singled out face no consequences. Not only is this insufficient as an internal control, but it also raises serious questions about the fairness of disciplinary action.

Is an amount that does not interfere with business management acceptable?

Makoto Watanabe has repeatedly stated that expenditures such as 10,000 yen, 30,000 yen, and 100,000 yen do not need to be strictly managed in advance as long as the amounts do not interfere with company management.

However, the reason why the personal use of corporate funds is problematic is not just a matter of whether the company can afford the amount. If small-scale fraud is left unchecked, honest employees lose out, and a culture of "it's fine as long as you don't get caught" spreads throughout the organization.

Furthermore, if personal misuse involves multiple people, multiple months, and multiple cards, even if individual expenses are small, the total amount will be large.

Not preventing fraud and shifting all responsibility onto the person who committed it

The characteristic of this system is that while management intentionally weakens prior controls, when problems are discovered, it places the heavy responsibility of wage reductions or dismissal on the individual employees.

If the company instructed the mass issuance of cards, eliminated pre-use approval, stopped verifying all transactions, and accepted the risk of personal use in advance, then when an incident occurs, the responsibility should not fall solely on the individual user.

Management, who designed a system prone to fraud; the board of directors, who approved decisions that weakened internal controls; and the audit department, which failed to verify the monitoring system—all bear their respective responsibilities.

Public questions for Last One Mile, Inc.

1. After the training, how many company cards were increased from how many?
2. Who currently reviews the full transaction history for company credit cards, and how do they do it?
3. How many transactions classified as "personal use," "purpose unknown," or "no supporting documentation provided" occurred after the training?
4. Have any employees received disciplinary actions such as a pay cut, demotion, or dismissal due to the personal use of cards?
5. How did you ensure fairness between the disciplined employee and the employees who were exempt from the random checks?
6. Did the Board of Directors and the Audit and Supervisory Committee approve a policy that accepts personal misappropriation to a certain extent?

A company where management turns a blind eye to misconduct and fires only the employees

I am not saying that all preliminary verifications should be kept. Streamlining small-amount payments is also necessary. However, streamlining does not mean declaring that fraud is acceptable.

Methods exist to prevent fraud while keeping management costs down, such as restricting the purpose of use, setting per-card limits, real-time notifications, automatic receipt matching, anomaly transaction detection, and instant card suspension upon resignation.

If you choose not to maintain them and instead adopt a system of saying, "If someone uses them at a bar on their own accord, well, fine. If we find them, we'll fire them," that is not efficient management.

It is a system where management intentionally creates a trap and only punishes the employees who fall into it.