Some astonishing news has come out.
It has emerged that the public interest incorporated foundation Japan Life Association (Minato Ward, Tokyo; represented by the foundation’s representative director), which says it supports elderly people without relatives, collected deposits from elderly people for future funeral expenses and other purposes without following the procedures prescribed by the Act on Authorization of Public Interest Corporations, diverted approximately ¥274 million of those funds, and that all directors will resign on January 19 to take responsibility (remainder omitted).
Until now, issues involving adults under guardianship and others had surfaced here and there, but for diversion to occur at a public interest incorporated foundation... It makes you wonder what in the world you can trust with money.
An outline appears in the Cabinet Office’s recommendation, so let us take a look.
What the Organization’s Business Does
It supports elderly people with the following:
- Personal guarantee (such as a personal guarantee when entering rental housing)
- Daily-living support (such as safety checks and hospital admission procedures)
- Support in an emergency (such as contacting family when the person becomes critically ill)
- Funeral support (an ending in accordance with the person’s wishes)
- Money management (money deposits and property management)
There really are all kinds of needs and businesses.
This time, the problem occurred in the area of “money management.”
Under a typical contract plan, of the total approximately ¥1.65 million paid by a user, approximately ¥1.06 million for personal-guarantee fees and the like goes to the association, while the remaining approximately ¥580,000 is treated as a deposit to cover future funeral expenses and the like.
It seems that a plan under which ¥1.06 million is revenue and ¥580,000 is money held for future funeral and similar services is common.
The money they diverted was entrusted as those ¥580,000 deposits: it belonged to other people, not to the public interest incorporated foundation.
Let Us Confirm What a Public Interest Incorporated Foundation Is
It is a general incorporated foundation whose principal purpose is to carry out public-interest-purpose activities and which has received public-interest certification. Under the Corporation Tax Act, income arising from profit-making businesses is taxable, while income arising from public-interest-purpose activities is not taxable.
In practice, obtaining public-interest certification is quite difficult. However, because income arising from public-interest-purpose activities is not taxable once certification is received, the system offers substantial benefits when the amount handled becomes large.
It is also easier to collect donations from supporters (tax preferences are available when certain requirements concerning the type of donation, the donor, and so on are met), so it may be considered as a recipient of a donation of inherited property.
Examining the Contents of the Cabinet Office Recommendation
Outline of the System for Holding Money from Elderly People
The public interest incorporated foundation holds money from elderly people in preparation for funerals and the like.
The money held does not belong to the public interest incorporated foundation; it is only being held. It is therefore kept separately from operating funds so that it is not depleted.
If the organization manages it in a separate account, there is a risk that it could use it at some point, so money entrusted by elderly people is strictly managed by a third party such as a law office, with restrictions preventing the public interest corporation from using it at will.
This is the ordinary practice of segregated management by securities companies (managing customers’ money separately from the company’s money).
Breaking the rule requiring outside management, such as by a lawyer, and diverting funds soon after certification
Only three months after certification, it decided, without authorization from the supervisory authority, to have the organization manage the money and began diverting it.
Of the total amount of just under ¥900 million entrusted by elderly people, it diverted just under ¥300 million. Even as of the January 15, 2016 recommendation, this shortfall had not been made good.
Reading the Cabinet Office Recommendation
The Cabinet Office recommendation (Japanese) is lengthy, so I will summarize it.
Without obtaining change certification from the administrative authority under Article 11 of the Act on Authorization of Public Interest Corporations, the corporation changed the contents of its public-interest-purpose business based on its own judgment. It then entered into contracts under which the corporation itself held deposits from the relevant users (hereinafter, “two-party contracts”) and carried out the business. Furthermore, by diverting deposits paid to the corporation under such contracts and which the corporation should have preserved and managed (hereinafter, “two-party-contract deposits”) to the corporation’s business and the like without providing any explanation whatsoever to the users, it created a substantial gap (hereinafter, the “deposit shortfall”) between the remaining balance of the two-party-contract deposits and the highly liquid assets that should originally have been secured.
In other words, it used the money it was holding.
In order to promptly restore and establish its financial foundation, take the following measures.
(1) With respect to measures for promptly securing highly liquid assets equivalent to the amount of two-party-contract deposits, prepare a plan for implementing those measures (hereinafter, the “restoration plan”), including consideration of reductions in executive compensation, allowances, and the like in light of the corporation’s circumstances, and whether the officers and others who brought about this situation bear liability for damages. Middle portion omitted.
(2) Until the restoration plan is achieved, from the perspective of protecting the users, establish a system for preserving and managing two-party-contract deposits by appointing a chief person responsible for preserving and managing, independently of the corporation’s organs, the receipt, disbursement, and other movements of funds relating to the deposits, and by putting in place operational management rules specifying the methods of preservation and management.
(3) In order to protect the users and comply with the Act on Authorization of Public Interest Corporations, prepare a plan (hereinafter, the “change plan”) for promptly cancelling or changing to three-party contracts the two-party contracts that have already been concluded.
They were given the following assignments:
- Improve the financial position through cost reductions and make up the money that was used.
- Clarify the responsibility of officers (directors and others) and consider damages.
- Eliminate the structure in which the organization manages the money it holds, and make contracts to return to a safe policy under which a third party manages it.
This is entirely reasonable.
In the balance sheet for fiscal 2014 submitted to the administrative authority, it held current assets totaling less than the deposits recorded as liabilities. According to the September report and November report requested concerning this matter, of total deposits of ¥883,761,410, the deposit shortfall amounted to ¥274,122,941, and it was expected to take approximately six years from then to eliminate it; during that period, the corporation would remain in a state of deposit shortfall.
Looking at this, the deposit shortfall as of the January 15, 2016 recommendation was ¥274 million. Subsequently, the Cabinet Office’s Public Interest Commission announced that, as of January 2016, the deposit shortfall was approximately ¥480 million and the balance of deposits being preserved was approximately ¥340 million.
In its September report, the corporation stated that “making up the deposit shortfall is the highest priority,” but as set out below, it is not recognized that it has exhausted possible measures for promptly making up the deposit shortfall, nor that it has taken the measures necessary to prevent new deposit shortfalls from arising.
(1) In the fiscal 2015 expense-reduction plan for eliminating the deposit shortfall in the September report, land and building rent increased by approximately ¥40 million compared with fiscal 2014 actual results, chiefly because it entered into a fixed-term leasehold contract for particular office space in 2015.
Upon confirming this with the corporation, the contract was found to be a fixed-term building lease agreement with a term of five years. The corporation could not cancel it during that term, and indicated that it intended to move to less expensive premises when the contract ended at the expiration of its term. While the contract cannot be cancelled, it will be a major constraint on eliminating the deposit shortfall; however, the corporation has not clarified where responsibility lies for this, and appropriate measures are not considered to have been taken.
(2) The corporation’s officers were to receive many types of allowances, including rental-housing rent subsidies. In addition, separate from retirement benefits under Article 2 of the retirement-benefit rules, full-time directors had whole-life insurance contracts for which the corporation paid the premiums, on the premise that the contracts would be cancelled at retirement.
Allowances for officers were reduced after the existence of the deposit shortfall became clear, but this does not change the fact that those allowances and the whole-life insurance were constraints on eliminating the deposit shortfall. In light of the corporation’s circumstances and the fact that responsibility within the corporation for the existence of the deposit shortfall has not been clarified, it cannot be recognized that every possible measure to promptly make up the deposit shortfall has been taken.
(3) For two-party-contract deposits for which a deposit shortfall had arisen through diversion and the like, the corporation established a four-member “Deposit Management Committee” and stated that it would manage the deposits through it. However, the committee was established within the corporation, and two of its four members were people connected with the corporation who had caused the deposit shortfall. Moreover, there were no clear arrangements concerning the preservation and management of deposits, so it cannot be recognized that appropriate measures for preserving and managing two-party-contract deposits had been taken.
The following is omitted.
It seems that they were running an extraordinarily lax operation. You can glimpse why the authorities instructed them to reduce executive compensation and allowances.
All the former directors resigned, and new directors took office. Only the new representative is listed on the website, but this was an internal promotion. If the other new directors include a reasonable number of outside experts as well as internal appointees, the organization may be cleaned up.
In our aging society, I believe this business meets a real need and serves the public by widening the options for end-of-life planning. I hope it is cleaned up as soon as possible.