No exemption, no fraud – Philosophy “One- to- one reconciliation principle”

This time, Inamori* spoke about the above motto to Seiwajuku workshop members. What Inamori said is quoted with “”.

“In selling your goods or services, it is important to precisely match each item with its record one- to- one, rather than recording them in a lump sum. For example, we must not move cash or goods without slips (record). We should not complete the accounting process only with slips without confirming the movement of cash or goods. Even when checking the collection of accounts receivable, it is necessary to reconcile on a one-to-one basis what we received from the client should be matched with which sales transaction we booked. In addition, in production and sales activities, it is necessary to accurately match so-called profits such as (total production) and (total profits) with the proper expenses. In other words, we should identify which expenses and how much were needed for us to acquire that sales or profit. This matching process should strictly be done under this one- to-one correspondence.”

To carry out this one-on-one principle accurately and reliably, it is important to consider why this system is necessary. I think we must maintain this principle for the following three reasons (points).

One by one, I will explain while quoting episodes that Mr. Inamori shared.

1. Think about what the best for staff is

Inamori shared an episode. There was an older, honest, kind, good-natured, serious salesperson. One of his customers had not paid for the products sold for months. He was too timid to get the customer’s seal on the delivery slip, and the product was, on the record, not delivered even though they had physically been delivered. The customer said that he did not process the payment because he did not have the delivery slip. Inamori said,

 “That guy was timid, so he couldn’t persuade the customer to put the seal on the sales and delivery slip. At the end of the day, he piled up a lot of slips without customers’ signs under his desk drawer. I realized that even one timid person could cause tons of account receivables which we can’t correct.”

 I think Mr. Inamori probably thought about the root cause of this delivery slip incident. ‘ If we had had a system when he delivered the product, he could have got proof on the delivery slip to be processed. In case he missed, he could have timely consulted with his supervisor. We should create a system where we can precisely trace a good or service and a slip move together.’

There is a proverb, ” Condemn the crime rather than the criminal” . Mr. Inamori probably thought this way. Injustice that occurs in the company and we should not blame staff who committed crimes but do the system itself. As long as we introduce a mechanism which can completely prevent people from committing fraud-like transactions, no staff must get blamed. He might have thought like that.

Overlooking his behaviors or complaining his reaction never works in preventing such troubles. To fundamentally change the mechanism which causes frauds or inappropriate transactions, we must re-design the system. The underlying idea is an affection towards staff. We would like you to stay away from getting stuck in troubles. I think he came up with a one-to-one correspondence when he thought about what would be good for that person, and what would help the employee to learn humanitarian values.

2. Be always skeptic so-called “Market practice”

Mr. Inamori told an episode about a Japanese trading house who, in collusion with their customer, created fictitious sales in a fiscal year then erased that sales on the book in the next year. Inamori said, “I have been telling you guys we create figures on the financial statements, but this means that those figures are the representations of the commitments of top leaders towards the targeted sales. I have never told you guys and Kyocera staff to manipulate accounting figures. However, many managers, from small and medium-sized enterprises to large companies, have been doing or are willing to do so-called window dressing accounting. We can detect this if we implement these one-to-one correspondences. This principle was established so that even the president could not commit fraud, in other words, this works as a precaution for a decision-maker not to deviate from the right behavior as a human being.”

→ While unintentionally accepting so-called market practice, we would never reach this idea. No matter what other experts say, it’s important to understand through experience that “if you lie, you will lose your trust. “ I think Mr. Inamori is referring to this.

3.The most effective way to detect frauds

Mr. Inamori said as follows.

“We can easily figure out if this one-to-one reconciliation works or not in a certain company. In any company, sales and profits fluctuate every month, but even if sales fluctuate unavoidably, the profit margin on sales will not change that much. However, companies where the fluctuation range of the profit margin is too large are obviously not able to provide one-to-one correspondence. In such a company, either the sales or expenses have been dealt with as gross. For example, if you look at the first half of the year, you will be profitable, or even if you are profitable for the whole year, if you look at the monthly performance, the results are so volatile. With such accounting figures, I never figure out whether our company is doing good or not.”

This kind of volatility of profits makes it impossible to detect fraud. To make accounting easier, in the first place, I think it is important to have a system that does not allow any fraud. To that end, I think it’s important to develop a system by which we can immediately figure out if something is wrong.

Together with our staff, I will keep learning this principle and implementing it into our company.

Further queries or doubts, please email to ytomizuka@abrilsjp.com

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